Preparing Your Portfolio for the #Trump Presidency

What do the investment markets hold for the next four years?

Regardless of your political views, we can all agree the next four years will likely be anything but predictable. As such, we position client portfolios to prosper regardless of market direction, interest rates, or geopolitical conditions.

To be clear, I’m not here to praise or undermine President Trump. Rather, my role is to give you an assessment of what I foresee happening during the Trump administration in regards to investing. While I don’t have a crystal ball, some of the policy changes that may occur and the industries that stand to benefit are as follows:

Domestic vs. International Investments

President Trump made it clear during his campaign that he has an “America-first” business philosophy, which could certainly aid domestic production of goods and services. Regardless of whether you agree with his methods, the reversals of Carrier, Ford, and most recently Fiat/Chrysler to shift manufacturing to Mexico, turned out to be not only good public relations for Mr. Trump, but those companies involved as well. While this alone may not be sufficient to increase stock prices for those firms, the growing sentiment to “buy American” may certainly have an impact on those electing to produce domestically rather than abroad.

Tax Cuts

Two words that never fail to generate heated discussion form both sides of the aisle. Regardless of which side you’re one, there is one point both can agree on: money is like water – and will always take the path of least resistance. While economists disagree on this, undeniable evidence of this can be seen in the countless corporations that have moved operations and retained trillions of dollars outside our borders.

As such, one proposal that is bound to influence corporate behavior, profits, domestic job creation, and thus increase the overall tax base, is the proposed reduction in the corporate tax rate from 35 percent to 15 percent. Confirmation of this can be seen with a quick skip across the pond. Ireland, with one of the lowest corporate tax rates in the developed world at 12.5%, enjoyed a 26.3% growth rate in 2015, compared to the United States at only 2.4% during the same period.

Tax Amnesty

Many of the largest corporations have billions of dollars parked overseas to escape the current corporate tax rate. In fact, it’s estimated the total amount of overseas stashed cash is over $2 trillion. As such, a significant tax reduction has been proposed to entice corporations to bring those dollars home.

So, what would these companies do with the profits they bring back to the U.S.? Critics of any such proposal suggest it would promote nothing more than corporate self-dealing, citing past tax amnesty programs that saw nothing more than corporate stock buy backs, dividends to shareholders, or even acquisitions of other companies. While all of these activities resulted in higher share prices, they did little to help the overall economy. However, this time around they’re suggesting something more. In addition to favorable tax treatment, significant credits would be granted to those firms that reinvested these assets in infrastructure and job creation in depressed cities.

Deregulation

An area the new president has also made it clear he wants to address, is a significant reduction in the amount of regulations businesses currently have to follow. The three main industries I see benefiting from deregulation are the energy sector, defense industry, as well as construction and industrial firms. The Trump administration seeks to increase domestic oil and gas production in an effort to make the U.S. less reliant on foreign sources for energy. While again, this is an area of great debate, when combined with less regulation, could create a very favorable outlook for energy companies.

His repeated reference to our “outdated military arsenal” was undoubtedly a battle cry for those at companies such as Raytheon, Lockheed Martin and General Dynamics. While their margins are likely to be a bit slimmer, the slated increase in production will surely be reflected in public sentiment and their share value.

Another key point in the “Make America Great Again” slogan is the improvement of our national infrastructure. This one area has such far reaching potential impact, that it could literally transform our economy. Now, if we can only figure out how to pay for it! That said, whether he appeals to you or not, the one thing Donald Trump has proven to be good at, is building things – roads, bridges, airports, and of course…a wall.

Infrastructure

President Trump has committed to spending $1 trillion over the next 10 years to fix crumbling roadways and bridges, modernize and expand airports, and build and repair other critical infrastructure. However, as I stated above, the question remains as to whether he’ll be able to get that amount approved by congress. Implementing his infrastructure plan would be a boon to construction companies, steel manufacturers, and other related companies.

Are You Prepared?

While I’ve given a hint as to some areas I feel will benefit, as I mentioned at the beginning, the true outcome will likely be anything but predictable. As such, are you prepared to prosper regardless of the market’s direction? Unfortunately, most portfolios are only positioned to make money in one way – if the market goes up.

Given our current economic and geopolitical environment, wouldn’t you rather be positioned similar to pension plans, large charities, and some of our country’s wealthiest families? For decades, those at the top have not only benefited regardless of market direction, but have done so with 70-80 percent less risk than the rest of us.

Now it’s your turn. See how at http://www.toolekinney.com/white-paper/.

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