Reshoring and Deregulation

Marc Zabicki:

Every four years there is seemingly heightened focus on financial markets and potential winners and losers following the U.S. presidential election. This time was certainly no different. As the policy contrast between the two candidates were definitive, creating potential opportunities for those who have done a bit of extra homework. In this latest edition of LPL Street View, we offer our quick view on how to manage portfolios around an election and we will provide two themes that may prove to be winners in the new Trump administration. First, let's start with a bit of history. For those of you that are wondering, using an investment strategy based on the outcome of past presidential elections has proven to be a loser for investors. Historic performance data shows that investing when one or the other political party was in control, far underperformed a more balanced investment approach. So let's be real clear on this point.

Marc Zabicki:

It's not a good idea to let your political views mix with your investment strategy. However, we believe there may be benefits for investors that tilt their portfolios just a bit to better align with the likely policies of a given election winner. In the Trump administration, we believe reshoring that is bringing U.S. production back inside the United States and deregulation will be some dominant themes over the next four years. While there has been a definitive market runup ahead of the election and further equity gains in certain segments based on Trump's election victory, we believe there are certain equity sectors investors should consider. If we get some bouts of asset price weakness and more attractive entry points in the coming months. The first consideration may be Industrials. We believe the industrial segment could be a key winner in the reshoring theme. All those industrials companies involved in building new U.S. production capacity should be a positive trend to ride over the next four years.

Marc Zabicki:

When considering the deregulation theme, our view is the Financial sector could be a key winner here as the new administration may help reduce regulatory burdens for banks and foster more merger and acquisition activity. What else should we consider? While valuations are a bit stretched and we would use some level of caution here, utilities may get more interesting given a potential equity selloff as they will be key providers of power to new U.S. manufacturing capacity that could come online. So there you have it. A few ideas to keep your eye on over the next four years. Again, we would not create material imbalances in your portfolio to take advantage of any of these, but if you are looking for some opportunities at the margin, the segments we mention may be good places to look. Thanks for listening. Enjoy the holiday season and as always, allocate wisely.