Napoleon famously said he would rather have lucky generals than good ones. The US’s new commander in chief should perhaps consider himself in the former category – at least as far as the economic landscape is concerned.
Donald Trump successfully campaigned on a claim that America is saddled with “the worst economy ever”, but the truth is rather more nuanced. While high inflation has brought a cost-of-living crisis for many, the bigger picture is defined by a number of positive themes.
For example, it is now three years since the $1.2trn Infrastructure Investment and Jobs Act was signed into law. The legislation has helped finance road, bridge and port repairs, investment in public transport, clean water, high-speed internet access, cybersecurity and protection from extreme weather events.
The Inflation Reduction Act, which was enacted a little over two years ago, has also provided firm foundations for the future. Its principal aims include reducing the federal government’s budget deficit and investing in domestic energy production.
Onshoring is another trend that should stand Trump in good stead. It is certainly one that is likely to accelerate under his aegis. Ditto the boom in artificial intelligence (AI), which has massive backing from some of the people who now rank among the president-elect’s closest confidants.
Crucially, recovery from the Covid-19 crisis continues as well. Areas of the economy which experienced excess demand during the pandemic and then a lack of demand in its aftermath are regaining their footholds.
Overall, despite diatribes to the contrary, the US is experiencing a period of reasonably healthy economic growth. GDP increased by 1.9% in 2022 and by another 2.5% in 2023, when it reached $27.4trn on the back of dynamics such as greater consumer spending, investment and exports.
The sentiment that Trump’s return to the White House will bring a further boost has solidified since his victory. The week after his win saw the S&P 500 index record its best seven days of the year, while the Dow Jones Industrial Average closed above 44,000 for the first time ever.
For investors, though, this begs an important question: has the time to capitalise on the Trump rally already passed? Not necessarily. We believe there are several sectors that are likely to do well over the longer term.
Industrials
The enduring effects of bipartisan legislation passed under Joe Biden’s presidency bode well for infrastructure, housing and the construction of new manufacturing facilities. In turn, this should be good news for building companies.
Our holdings include Eagle Materials and Vulcan Materials. They are leading producers of cement, concrete, gypsum, sand, stone, gravel and other construction aggregates. We feel their valuations do not fully reflect the market drivers currently in their favour.
Financials
This is the arena most likely to benefit from the Republicans’ clean sweep of the presidency, the House of Representatives and the Senate. With no meaningful opposition standing in his way, Trump can push through an agenda of financial deregulation.
This means there should be substantial scope for investment banks such as Goldman Sachs and Jefferies, both of which we hold, to move on from the relatively depressed activity levels of recent years. Traditional banks are also likely to welcome less regulatory interference.
Utilities
The words ‘utilities’ and ‘excitement’ are not natural bedfellows. After all, this is a corner of the investment universe which is customarily perceived as defensive and slightly dull. Right now, however, we feel close attention is merited.
Our holdings in US utilities include Constellation and Vistra, both of which are focused on nuclear power generation, and PG&E, a regulated company overseen by the California Public Utilities Commission. We expect all three to prosper in light of rising demand for electricity, which is giving them pricing power, and ongoing reinvestment in energy infrastructure, which looks set to fuel further growth.
Semiconductors
Every investor knows about the AI boom, yet in many ways it has barely begun. The true scale of the transformation now under way is likely to become apparent only over the course of many years, with numerous new revenue streams developing over time.
We first took a position in Nvidia at the start of 2023. It is now firmly established as one of the world’s largest companies. Two other semiconductor makers, Broadcom and Micro, have since been added to our holdings.
All politics aside…
“In politics,” Napoleon also said, “stupidity is not a handicap”. We will see about that. Given his proven unpredictability, it would be wrong to suggest a Trump presidency represents a guaranteed success for investors.
Yet we believe much of the groundwork for further US growth is already in place – and the market clearly agrees. As has always been the case, quite irrespective of the political backdrop, in-depth research and diligent stock-picking will be key to identifying the brightest opportunities.
Cormac Weldon is head of US equities at Artemis and Adrian Brass is co-manager of Artemis’ US Extended Alpha strategy.