The Only Real Trump Trades Ride on Rising Interest Rates

Remember when Donald Trump won the White House in 2016 in part on the promise of “Drill, baby, drill?” Well, it turns out that wasn’t a boon for oil companies. The energy sector, in fact, was the worst-performing one during the first Trump Administration. Technology shares rose the most. Forecasting how things will play out in the equity market is no more clear with the prospect of Trump 2.0. That’s not stopping traders from bidding up would-be winners, like immigrant-detention-center operator Geo Group Inc., or banks that could benefit from laxer regulations. But trying to divine how equity market sectors will perform has a lot to do with the macro economy and idiosyncratic factors beyond the president’s control. Despite record highs for Bitcoin on Trump’s election, the same might also be true for crypto too, an asset class with too short a history to judge.

The only ‘real’ Trump trades are those tied to the direction of interest rates (and maybe gold, which often behaves like a proxy). That’s because Trump’s tax-cut plans, if he follows through, will almost certainly balloon the deficit, taxing the market’s ability to keep absorbing an endless — and ever rising — volume of Treasury bonds.
They would also pour stimulus on an economy that the Federal Reserve has already been actively trying to slow down. Throw on import tariffs, and the inflation pressures get that much heavier. Not only will monetary policy have to be tighter to offset that, but the threat of inflation and higher premiums for longer-maturity assets will take its toll. For rate bulls then, the only real hope is a recession — something we all want to avoid.