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Initial Market Activity After the Election12-02-16 | Feature

Initial Market Activity After the Election
Does It Presage the Winning and Losing Sectors in a Trump Administration?

Construction spending from Jan. to Sept 2016 was down 1.4% from the previous year. Federal construction outlays were flat, however private-sector construction spending was up 7%. Trump has vowed to increase spending on infrastructure. According to the Labor Department, only 23 states and D.C. added construction jobs between September and October, while construction employment increased in 35 states between October 2015 and October 2016.
*Photo by Adam Kelly*

As with all presidential election outcomes, an incoming president's policy statements during the campaign are weighed by investors. Immediately following Trumps' Electoral College win it became clear, at least early on, which sectors of the economy investors though would be winners and losers with Trump at the helm.

Perceived Winning Sectors
Banks"?uBank stocks immediately popped. Perceptions are the new administration will have a laissez-faire attitude about banking regulations. Trump said he would "get rid of" the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010, which he considers bureaucratic red tape and not the answer to improving U.S. financial health.

Fossil Fuel Resources"?uTrump seeks to lift restrictions on oil and gas production, which he said would increase GDP by some $127 billion and add 500,000 jobs. He is bullish on the Keystone XL pipeline. Time reports Trump owns stock in Energy Transfer Partners (ETP), the company building the pipeline, and "received more than $100,000 in campaign contributions from the company's CEO." CNBC reports Trump's 2016 May federal disclosure forms show he owned between $15,000 and $50,000 in ETP stock, (down from between $500,000 and $1 million a year earlier), and owns between $100,000 and $250,000 in Phillips66, which has a one-quarter share of Dakota Access. Note: On Nov. 21, Sunoco Logistics announced a merger with ETP.

Construction"?uTrump has called for spending up to $1 trillion on infrastructure. Construction-related stocks have risen in the U.S. and Europe following the election. Steel producer ArcelorMittal's stock soared more than 10% in the first days after the election, and copper prices quickly rose about 10%.

The world's largest brick maker Wienerberger AG (Austria) gained 7%, as did Caterpillar, a company in the doldrums for four years. When Doug Oberhelman became CEO of Caterpillar in 2010, he made heavy bets on the increased demand for more big Caterpillar equipment and invested heavily in mining equipment, including buying a Milwaukee mining equipment maker for $8.8 billion. The combination of slower growth in China, and the fall of commodity and oil prices sunk the demand for the large equipment Caterpillar makes, resulting in four straight years of falling sales for the company and a 20% cutback in its workforce.

In mid-October, Oberhelman announced plans to step down at the end of the year. Jim Umpleby, a company group president and 35-year veteran of Caterpillar will be his successor.

The Wall Street Journal (WSJ) reported in early November that state and local governments spent an annualized $248.47 billion on infrastructure construction in August, the least amount since March 2014, and an 11% drop from the peak spending in mid-2015. The WSJ called it a "sharp pullback"?(R)?unusual in the eighth year of an economic expansion . . ."

State and local government spending last year accounted for about 11% of U.S. economic output. Just one example of this "pullback" occurred in Kansas when 24 road construction projects were delayed this spring to help balance the state budget. The August decline in infrastructure construction "depressed gross domestic product growth in the spring and was on track to weigh on growth again in the third quarter," according to the WSJ.

Private Prison Contractors"?uStock prices for the country's largest private contractor of prisons and detention centers skyrocketed the day after the election. CoreCivic catapulted 58%; the second largest prison private contractor, GEO Group, rose 28%.

Perceived Losing Sectors
U.S. Automakers and Auto Parts Makers in Mexico"?uMexico accounts for 20 percent of vehicle production in North America and has attracted more than $24 billion in investment from the industry since 2010, according to Ann Arbor, Michigan-based Center for Automotive Research. In June 2015, Trump said he would block Ford from opening a new plant in Mexico and impose tariffs on cars shipped to the U.S. Charles Chesbrough, senior economist at the Detroit-based Original Equipment Suppliers Association, said these "trade policies could add $5,000 or more to the price of a small car from Mexico." Ford Chairman Bill Ford told the president-elect he will not move production of Lincolns out of Kentucky.

Shares at first fell for U.S. automakers and big automotive parts suppliers who heavily rely on production in Mexico. GM shares dropped as much as 4 percent the day after the election, but recovered some of that decline in the afternoon, and on Friday of that week gained 3.94%.

Electric Cars"?uThe golden child of electric car, Tesla Motors, fell 3.3% the day after the election, but rose 1.3% in on Friday, Nov. 11. The perception is that Trump may cut federal incentives to the electric car sector.

Green Energy Sector"?uTrump, who has called climate change a hoax, has pledged to reverse Obama's renewable-energy policies. He said he would "cancel" the Paris Climate Agreement. Stock prices for companies like SunPower, SolarCity and Pattern Energy Group (wind farms) and Danish wind-turbine maker Vestas A/S immediately dropped, but made recoveries on Friday Nov. 11.

Chinese Yuan and Mexican Peso"?uThe Yuan fell to a six-year low against the U.S. dollar on Thursday following the election, partly based on the perception that Trump could worsen relations with the world's second-biggest economy. The Mexican Peso plunged close to 12% the day after the election, hitting an all-time low. Trump has proposed a 45% tax on Chinese imports and a 35% tax on Mexican imports.

Silicon Valley"?uThe big players in Silicon Valley enjoyed good relations with the Obama administrations, but Trump looks to battle the tech giants. He has pledged to initiate antitrust actions against Amazon, and force Apple to make its products in the U.S.

U.S. Firearm Makers"?uSmith & Wesson got clobbered. It fell 15% the day after the election, dropped another 8.9% on Thursday and lost 3.37% on Friday, as did Sturm, Ruger (fell 13.6% on Wednesday, 24% on Thursday and 1.96% on Friday). Clinton supported more gun controls. Any mention of gun control sparks gun sales in the U.S., but with Trump in office, the perception is that gun owners are not as motivated to add to their arsenals.

As seen in LASN magazine, December 2016.