How YOU can cash in on the Trump Bump
AS CONTROVERSIAL as he may be, it seems the new US President can do no wrong as far as the stock market is concerned.
The Dow Jones has soared nearly 2,500 points since Donald Trump was elected on November 8. The rally – dubbed by some as the Trump Bump – this week saw the Dow smash through 21,000 for the first time.
Having only reached the 20,000 mark for the first time in January, the previous occasion the US stock market gained 1,000 points so quickly was the dotcom bubble in 1999.
And with almost 80pc of the FTSE’s earnings coming from overseas, euphoria is driving the UK stock market higher – this week the FTSE 100 hit a record 7382 as Donald Trump delivered his pro-business speech. Details are hazy, but it was enough to spur optimism around infrastructure, defence and finance firms.
Kathleen Brooks, research director at City Index, says: ‘We know that Trump is driving this rally because financials, energy and materials were the top performing sectors. They are thriving on the back of hope that President Trump can boost their prospects through spending and deregulation.’
Trump has pledged £810bn of investment in US infrastructure, reiterating his desire to build a ‘great, great wall’ along the border with Mexico – marvellous news for construction firms and their suppliers.
Irish construction materials supplier CRH this week said it expected spending in its key markets – including the US – to climb 20pc or more over the next four years. It reported record results this week with a 69pc rise in pre-tax profits.
Russ Mould, investment director at AJ Bell, says: ‘The firm is set to benefit significantly from Trump’s planning infrastructure splurge.’
Equipment rental firm Ashtead is another UK-based beneficiary. The second-largest rental business in the US, the region accounts for about 84pc of the firm’s revenue. Jenny Jones, manager of the Schroder US Mid Cap, is looking at businesses in the sector which provide products and services for homes, including everything from doors to air conditioning, such as Rollins.
She says that if Trump is looking to limit imports it makes sense to choose domestic firms which provide services in the US. Her fund has returned 44.3pc in the past year.
Meanwhile, promises to increase defence spending could be a boon for UK businesses such as Babcock, BAE Systems and Rolls-Royce.
DEFENCE spending as a proportion of GDP is at an historic low and Trump has vowed to increase spending in the sector by around £44bn a year.
Fidelity American Special Situations manager Angel Agudo said: ‘US military needs modernisation including cyber technologies, intelligence gathering, defence electronics and precision strike capabilities.’
Agudo also has 15pc of the £1.3bn fund invested in finance firms. The fund, which has returned 36.7pc over the past year, invests in businesses including financial services firm Berkshire Hathaway and Bank of New York Mellon, which could benefit from Trump’s promise to cut red tape.
In the UK those banks likely to benefit are ones with overseas operations, such as HSBC and Barclays. Banks had gained on hopes that Trump would repeal the Dodd-Frank Act (laws tightening controls on banks after the crisis) but that wasn’t mentioned this week.
If cuts to regulation are slower and less radical that could send financial firms lower.
Regulation cuts could also be made in the energy sector, where Trump wants to undo some of his predecessor’s environmental policies. Pro-oil measures would help FTSE giants including Shell and BP.
The earnings of these giants could be further boosted if Trump cuts corporation tax.
While there is much to be optimistic about, crucial details are missing. Some experts are concerned that any disappointment could knock the stock market back significantly.
Jones says: ‘Things take longer than you think and they are often harder than you think. I believe Trump will achieve many of his goals but they could take up to 18 months to accomplish. That leaves a lot of room for disappointment.’