The term "Trump Trades" has quickly gained traction since the former president's election victory, with a wave of market reactions and speculation tied to his return and potential policy agenda.
A week into Trump's second victory, several industries have already benefited from his policy hints, sparking what could be short-lived enthusiasm or the start of a longer trend.
In a note to clients Tuesday, Gavekal Research offered insights into the market phenomenon and questioned its sustainability.
The Rise of Trump Trades
Following Trump's win, the U.S. stock market soared, with the S&P 500 hitting a record-high close, buoyed by expectations of sweeping deregulation.
Major beneficiaries include industries and companies thought to be closely linked to the administration, such as Tesla (NASDAQ:TSLA), which surged by $428 billion in market capitalization, and Palantir (NYSE:PLTR), up by 45%, according to Gavekal.
The firm also highlights bitcoin's recent rise, credited to Trump's proposal to create a "strategic bitcoin reserve," fueling a rally in the digital currency's market cap.
Other sectors have seen parallel gains. Gavekal notes that Financials and energy stocks, which could see eased regulation under Trump's anticipated policies, have enjoyed notable outperformance, even as oil prices have dipped.
Energy stocks, particularly, stand to benefit from a deregulation boost and a pivot away from green subsidies, according to Gavekal. Conversely, certain green-focused assets, such as copper and silver, have pulled back in response to anticipated cuts in renewable subsidies.
Skepticism Surrounding Long-Term Sustainability
Despite the immediate gains, Gavekal raises doubts about the endurance of Trump Trades.
For instance, they state that healthcare stocks have remained resilient, which seems contradictory if Trump's policies are focused on stimulating economic growth.
"More importantly, it seems likely that Bobby Kennedy Jr. will have an important role in the new Trump administration. This cannot be good for a large number of health care names," says Gavekal.
Moreover, they believe the resilience of large technology firms is puzzling; given their historically tense relationship with Trump, Gavekal says the administration could increase antitrust scrutiny on companies like Alphabet (NASDAQ:GOOGL), Meta (NASDAQ:META), and Apple (NASDAQ:AAPL), impacting long-term growth.
The U.S. Treasury and dollar have also seen a counterintuitive rally. Bonds initially sold off due to concerns over Trump's fiscal policy, but recent sessions have seen a return to previous levels, which Gavekal describes as perplexing if growth expectations are indeed higher.
Additionally, the firm notes that a strengthened dollar could pose challenges to Trump's goal of reindustrializing the American economy, as a robust dollar tends to discourage exports and inflate import costs.
Another concern is the speculative surge in assets like cryptocurrencies and certain overvalued stocks such as Tesla. According to Gavekal, this speculative frenzy might not be sustainable as "neither central bankers, nor energy prices, nor bond markets" currently seem to provide the usual restraints.
In short, while Trump Trades may offer compelling opportunities in the near term, Gavekal Research urges caution.