The polls and the pundits had it all wrong in 2016. They said Donald Trump had no chance of winning the election, and if he did, the stock market would crash.
So much for polls and pundits.
The short answer is, “yes,” markets will rally.
In fact, equity markets will soar if the President is reelected and Republicans win both houses of Congress, which admittedly is a longshot because a Republican runway would lead to lower taxes, more deregulation, and across-the-board business support.
Stocks will rally if Mr. Trump wins and Congress remains divided with Democrats controlling the House and Republicans still controlling the Senate, since that’s the bullish playbook markets have already been following.
And, stocks will rally if Mr. Trump is reelected and both houses of Congress end up firmly in the hands of Democrats, only the push higher may not be long-lived. That’s because fighting between a Trump administration and a decidedly Democrat Congress would “hard-check” and likely counter bullish Republican measures.
Since the latter scenario is the most likely, meaning if the President wins but Congress is controlled by a Democrat majority, investors will need to be far more selective picking stocks.
Here are three stocks from three sectors that will rally if Mr. Trump wins and Republicans control Congress, and sectors not to jump into unless Republicans win both houses.
Grab A Slice of Trump’s Giant Defense Budget
It’s axiomatic that defense and aerospace companies do well when Republican presidents lead a Republican-controlled Congress because strong military spending is a Republican priority.
President Trump has already beefed up America’s military but complains he can’t spend more on defense because the Democrats in the House oppose his efforts.
A Republican sweep would fire up defense stocks, with one company likely to lead the pack.
Lockheed Martin (NYSE:LMT), the perennial sector favorite and maker of Black Hawk helicopters, F-16 Fighter jets, and the Orion spacecraft, should be on everyone’s buy list.
Lockheed’s an aerospace and defense “blue chip,” meaning it’s considered cream of the crop when it comes to the sector. LMT’s already fared well during the Trump presidency, rising more than 58% since his election in 2016. While that’s a solid gain, the stock is still priced below market at 16 times next year’s earnings estimates. And, more importantly, in a yield starved world, the stock sports an attractive 2.50% dividend return.
Lockheed will do well regardless of who wins in November. But given the company’s history, expect it to be one of the top stocks to buy if Republicans rule Washington.
Make the Energy Sector Great Again
Energy stocks have been market laggards for years, partly due to the success of frackers adding millions of barrels of oil to mostly flush stockpiles while leveraging their balance sheets to grow as fast as they could.
American energy companies were already looking at structural oversupply for the foreseeable future when COVID lockdowns decimated demand. Now, fragile balance sheets and the push towards green energy look to take the remaining wind out of energy company stocks’ sails.
Fortunately for traditional energy resources, oil and coal, President Trump’s a big fan, and with a big business mandate won’t let America’s energy companies rot away.
Strong support from Washington would focus investors on beaten-down energy stocks, making the sector great again.
The company that best fits that bill, meaning it’s been beaten-down and with government “support’ is solidly poised to be great again, is Exxon Mobil (NYSE:XOM).
XOM is trading at prices first seen 20 years ago and sports a dividend yield of more than 8%.
What investors’ attention should be focused on is, in spite of the fact that fossil fuels aren’t likely to ever experience high growth trajectories again, just as we saw with tobacco stocks, industries drifting towards measured declines can make solid investments if bought at the right prices.
XOM is definitely one of those gems.
Rebuilding Infrastructure on Both Sides of the Aisle
President Trump’s delivered on two out of three of his 2016 platform promises, he’s lowered taxes and deregulated. His third platform agenda, which will be even more predominant during this election cycle, is infrastructure rebuilding. A Trump administration backed by a Republican Congress would get America working again by spending trillions on rebuilding America’s crumbling infrastructure.
Even if Democrats sweep Washington, this next stock is going to be a winner, because Democrats are advocating for infrastructure spending too.
The company is Summit Materials Inc. (NYSE:SUM).
Summit supplies building materials, specifically, asphalt, cement, and ready-mix concrete, to the construction industry. The company supplements its robust materials business with services, including paving and trucking.
Both Republicans and Democrats have been trying to push through Federal funding for infrastructure projects, but partisan divisions have made getting a bill through impossible.
No matter who wins in November, investors should count on increased Federal spending generally, including an infrastructure bill right away in 2021.
That makes Summit a buy now.
But Summit’s not the only company going to soar, no matter who wins the White House this November. There are tons of companies that offer products and services that both Democrats and Republicans are desperately vying for.
Source: Total Wealth Research