Investors are showing confidence in the “Trump trade.” Here’s a breakdown of what it entails.

As the political landscape evolves with former President Donald Trump gaining momentum in the polls against President Joe Biden, investors are starting to place their bets on what this could mean for the U.S. economy, stock prices, and specific industries and companies. This phenomenon has been labeled the “Trump trade” on Wall Street.

Goldman Sachs analysts highlighted the significant macro and market implications of a potential Trump presidency, particularly focusing on trade policy and tariffs. The imposition of universal tariffs on U.S. imports, as proposed by Trump, could benefit companies that predominantly operate within the domestic market rather than on a global scale.

JJ Kinahan, CEO of IG North America, described the Trump trade as the speculation that revolves around companies expected to thrive under a Trump administration based on his outlined agenda. However, the reality of what is promised and what actually transpires can often differ.

Driving Forces Behind Stock Movements

Art Hogan, chief market strategist at B Riley Wealth, cautioned against making predictions based on an election that is still over 100 days away. He emphasized the importance of economic factors in driving stock performance, citing S&P 500 earnings and expectations of a Federal Reserve interest rate cut as key contributors to the market’s upward trajectory this year.

Hogan also pointed out that assumptions about continuing tax cuts and lower interest rates, in line with market trends, have spurred growth in small-cap stocks. Additionally, investors anticipate less regulatory scrutiny under a Trump administration, potentially favoring regulated sectors such as banking and energy.

However, economists foresee challenges such as inflation due to Trump’s proposed tariffs and immigration policies, which could have wide-reaching consequences.

Potential Winners in Various Industries

Trump’s emphasis on expanding fossil fuel production could benefit energy giants like Exxon, with a “drill, baby, drill” approach gaining momentum. Cryptocurrencies have also emerged as a potential winner under a second Trump presidency, as his recent positive stance on digital assets aligns with market sentiment.

Crypto-related stocks surged following Trump’s statements, highlighting the market’s responsiveness to his comments. Private prison stocks have also seen gains amidst discussions of stricter immigration policies.

Market Responses to Trump’s Statements

Recent statements by Trump regarding tariffs, military funding, and other policies have already impacted financial markets. Semiconductor and tech companies suffered losses following Trump’s remarks, signaling volatility in response to political developments.

While short-term reactions may be jittery, analysts anticipate continued growth in the tech sector despite challenges. The ongoing U.S.-China tech war rhetoric is expected to have a limited impact, with the tech industry projected to remain resilient in the long run.