The Trump Trade: 5 of My Favorite Post-Election Investments

The 2024 presidential election just concluded with a clear victory for Donald Trump. On top of the presidency, the Republican Party also won the Senate and currently leads the battle for the House.

With a united congress, the Republicans will have a lot more freedom to push their agenda and concrete policies. The Democrats wouldn’t be there to keep them in check and make sure that only initiatives with bipartisan support get implemented.

Historically, the stock market tends to underperform under these circumstances. Since 1948, the annual return of the Dow Jones Industrial Average is 8.3% but 12.9% when there’s a split congress.

I’m a big believer in always having broad exposure to equities, no matter who’s in charge. But considering the historical performance and Trump’s somewhat radical stance on certain issues, it might pay off to position your portfolio to the new reality whether it ends in a clean sweep or not.

I have been buying into the ‘Trump Trade’ over the past few months and will continue to monitor the opportunities. I will cover some of my favorites below. But first, a quick note on the current setup compared to Trump’s last election victory.

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2024 is not like 2016

It’s unclear how much of the ‘Trump Trade’ is already priced into the market. Keep in mind that his victory in 2016 was a big surprise, even to himself. The market hadn’t priced in a Trump victory, nor did it fully know how to do that.

Things are very different this time around. Trump has been ahead in the polls for much of the past several months. Even if he hadn’t, market participants should have learned from the last time not to underestimate a candidate just because of some poor polling.

Furthermore, we now know Trump a lot better. We know what he stands for and what we did–and didn’t–when we was president.

We should expect that the market has already adjusted to a likely Trump win and at least partially priced it in. However, I still think the Trump Trade can outperform the broader market over the coming four years and want to be positioned accordingly. Here’s what I have done or plan on doing.

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Trade #1: US vs foreign markets

Perhaps the most obvious difference between the Democratic and Republican parties is their approach to foreign policy. To really simplify things: Democrats favor foreign trade agreements and (more) open borders while Republicans tend to prioritize the nation’s own interests over globalization.

The new Republican administration is likely to be more strict toward foreign adversaries than the current Democratic one. And while there are already tensions between China and the US, escalating during the current Democratic administration, it’s likely to get ratcheted up with Trump at the helm.

The trade

• Buy US equities. I believe the US stock market will do very well under Trump and have positioned accordingly. I don’t think we need to overthink this one. But if you do want to get more selective, consider the following.
• Buy US companies with large Chinese competition. If for instance online Chinese retailers suddenly get hit by massive tariffs (or worse), US alternatives stand to benefit. Think Amazon, Etsy, and even Walmart, Target, etc. And how about Meta, Snap, and Pinterest if TikTok finally gets “banned” in the US? Other industries worth looking into include automotive and hardware.
• Buy US nationals. Small caps generally operate nationally and stand to benefit from decreased competition from foreign companies. The Russell 2000 is one potential way to gain exposure to this shift. The index rallied more than 5% the day after the election.
• Underweight China. Donald Trump has promised to put some hefty tariffs on Chinese products like cars, technology, and consumer products, making them significantly more expensive and less competitive. The Chinese Hang Seng index dropped more than 2% on the morning after the election while the Japan’s Nikkei 225 and India’s Nifty Fifty rose 2.6% and 1.3% respectively.
• Underweight US companies with large exposure to China, whether in the form of exports or direct operations in the country. Trump might choose to punish these companies himself, or they may get hit by China’s retaliation against US tariffs. Either way, it could spell trouble for the likes of Nike, Starbucks, Apple, etc.
• Watch whoever takes China’s place. While we should expect Trump to be tough on all non-US countries, the focus on China may be to someone else’s benefit. Could US companies turn their attention to India, for instance, as a place for both production and exports? It’s at least worth paying attention to.
• Watch The US dollar. Investors disagree on whether a Trump presidency would be good or bad for the US dollar, but it will be an interesting one to watch.

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Trade #2: Bitcoin and crypto

Donald Trump has been embracing crypto for a while now, launching his own NFT collections and most recently a decentralized finance platform. He also spoke at Bitcoin Nashville where he promised to fire Gary Gensler, chairman of the SEC, who’s appeared to have a personal vendetta against the crypto industry.

Last but not least, Donald Trump has spoken multiple times about the opportunity to make Bitcoin a strategic reserve asset for the US.

The Democrats, on the other hand, have waged an outright war against the technology and the industry at large. Exemplified by formerly mentioned Gary Gensler, the number one most despised person among crypto believers.

The trade

• Buy (more) bitcoin. Clearer and friendlier crypto regulation will be good for bitcoin. And then there’s Donald Trump’s idea of putting bitcoin on the balance sheet as a strategic reserve asset. In short, Trump will be good for bitcoin as evidenced by the record-high it reached when the early election results began pointing to a Trump victory.
• Buy crypto at large. If crypto at large is embraced by government, attention is likely to shift further out the risk curve toward smaller and more speculative cryptocurrencies that have been faced with significant regulatory risk under the Biden administration. I think Bitcoin is likely to underperform leading alt coins and meme coins, while still being a great investment. I’m positioned accordingly.
• Buy publicly traded companies within the industry. Coinbase, Robinhood, MicroStrategy, and bitcoin miners should all be beneficiaries.

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Trade #3: Financials

During Trump’s last stint in office, he favored deregulation and less scrutiny of the financial sector. Investors expect a similar approach in the coming years, enabling financial companies to operate more freely and improve both revenue and earnings.

The trade

• Buy banks and other financial service providers. I’d stick with the best of the best like JPMorgan Chase and Morgan Stanley, expecting the winners to keep winning. But I’m also interested in gaining exposure to smaller US banks, for instance through an ETF like the iShares U.S. Regional Banks ETF. The financial sector gained more than 2% on the day after the election, likely in response to the Republican victory.

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Trade #4: Inflation

Donald Trump wants to lower taxes, bring production onshore, and put tariffs on certain imports. All of this is likely to be inflationary. While analysts don’t expect inflation to get anywhere near where it was a couple of years ago, I want to have some inflation hedges in my portfolio.

The trade

• Buy commodities like gold, silver, corn, coffee beans, etc. Gold is arguably the preferred inflation hedge among large investors but the price of all commodities stands to increase in an inflationary environment. Gold prices dropped in the first hours after the election though, while the US dollar rallied 1.5%.
• Buy US treasuries. Higher inflation could prompt the Fed to keep rates higher for longer, increasing treasury yields at the same time.
• Buy bitcoin. The digital gold narrative is still in its early stages but could gain additional momentum with a crypto-friendly president. More on that below.
• Underweight rate-sensitive companies. Companies with large amounts of debt will benefit from lower interest rates.

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Trade #5: Defense

The consensus perception is that a Donald Trump presidency would cause an escalation in existing conflicts and an increased risk of new ones. Whether or not that’s true, the fear alone could lead to increased defense spending for governments around the world.

The trade

• Buy defense and cybersecurity stocks. I want to own companies like Lockheed Martin, RTX Corporation, and Rheinmetall, or ETFs like the iShares U.S. Aerospace & Defense ETF or Invesco Aerospace & Defense ETF.

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Bonus: The Musk trade

The recently-formed alliance between Donald Trump and Elon Musk brings a new angle into the Trump trade. Or rather, the Musk trade?

It’s fair to assume that Elon Musk’s close ties to Trump and the government will be good for his own interests. I assume Trump will be less likely to implement regulation and other initiatives that directly hurt Musk’s companies, for instance.

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The trade

• Buy Tesla. Somewhat paradoxically, a harsher stance on EV companies will likely benefit Tesla. It’s one of the few companies with enough scale that it doesn’t need the incentives. The same cannot be said for its competitors. Thus, the Trump presidency is likely to hurt Tesla’s competitors but not Tesla itself. Furthermore, Trump is very much pro tech and innovation and is likely to implement initiatives that benefit companies like Tesla. The stock rallied +10% in extended hours after the election, probably front-running what’s to come.
• Buy Dogecoin. I’ve already made the case for crypto above but Dogecoin deserves a direct callout. It’s arguably Elon Musk’s favorite meme coin and he takes any chance he gets to promote it. He and Trump have also talked about Musk leading a newly formed Department of Government Efficiency, coincidentally abbreviated DOGE. Do with that information what you will. I’m buying some Dogecoin.

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How about energy?

It’s no secret that Donald Trump is not the biggest fan of green energy. On the contrary, he’s a big proponent of oil and other traditional energy sources.

At the same time, Democrats have long been in favor of the transition to renewable energy. However, the stocks in this sector haven’t exactly done well under the Biden administration.

Furthermore, Trump’s love of oil doesn’t necessarily benefit oil companies. He wants to increase production (a lot), thus skewing the supply-demand balance, putting downward pressure on oil prices, and hurting the profitability of oil companies.

I will be watching the sector but don’t feel confident enough to place a long-term bet either way. The immediate reaction after the election was pretty clear though: Renewable energy companies plummeted around 10%.

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Further reading

I’m by no means the only one who has speculated in the Trump trade. Investors and analysts have been putting out analyses for months. Here are a few of my favorites.

• How Sectors Perform Under Republicans vs. Democrats
• 5 Stocks to Buy for a Trump Presidency
• 3 Stocks That Could Surge if a Republican President Wins in 2024
• 10 Stocks to Own if Democrats or Republicans Win Big in November
• Trump Hasn’t Won the Election Yet. The Stock Market Is Acting Like He Already Has.

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