Investors initially saw a rapid rebound in risk appetite in the U.S. stock market following Donald Trump's announcement of election victory. However, they're now pondering which sectors might emerge as the next winners in the "Trump 2.0" era. Trump's campaign promises included high tariffs, tax cuts, deregulation, and strict immigration policies, which have sparked significant interest in the stock market.
There is speculation that tariffs might reignite inflation, affecting large multinational corporations while benefiting domestic small-cap stocks. On the other hand, immigration restrictions could raise labor costs, impacting smaller businesses.
Industries like small-cap stocks, which draw most of their revenue domestically, could gain from Trump's protectionist stance. The potential reduction in corporate taxes may also provide a boost. Notably, the Russell 2000 Index rose 8.6% recently, with Sezzle Inc. being one of the top gainers as its stock price doubled.
Financial stocks are perceived to be in a strong position due to Trump's promise to reform regulations imposed under Biden. Major banks like Citigroup Inc. (C, Financial), Goldman Sachs Group Inc. (GS), and JPMorgan Chase & Co. (JPM) saw their stock prices surge following Trump's victory.
Caterpillar Inc. (CAT) and others in the industrial and machinery sectors could benefit from domestic production of energy and mining commodities. Analysts believe American industrial suppliers like Fastenal Co. and WW Grainger Inc. have a strong record of handling tariff-related cost increases.
Some investors are wary of potential supply gluts in traditional energy stocks, despite their initial rise, due to Trump's oil-friendly policies. Meanwhile, luxury brands could remain relatively insulated from high tariffs compared to other consumer goods companies.
While clean and renewable energy sectors faced downturns last week, analysts suggest that significant rollbacks of supportive legislation, such as the Inflation Reduction Act, are unlikely. Companies like First Solar Inc. (FSLR) and Fluence Energy Inc. might still outperform due to domestic demand and protectionist policies.
