ETFs in this sector could make big moves if Trump wins the White House

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ETF investors are betting on how another Donald Trump presidency could impact sectors of the stock market, as the former president made history this week by scoring a convincing win in New Hampshire after pulling off a big win in Iowa, putting him one step closer to… A rematch with the Democrats. President Joe Biden in November.

While it may be too early to worry about the outcome of the election, especially with voters unenthusiastic about the possibility of a rerun, some market analysts are identifying potential winners and losers in the stock market if a Republican wins the White House, based on factors including: About what happened last time and about the policy goals that Trump has in the event of a second term.

The election adds to a long list of uncertainties that Wall Street has been watching closely amid the current stock market rally, including inflation, the Federal Reserve's interest rate outlook, geopolitical tensions, and the health of the U.S. economy.

Here's a look at how some ETF sectors performed under a Trump presidency between 2016 and 2020, and what could make 2024 different if he heads to a second win.

energyRelated ETFs

The first scenario that many expect is for Trump to roll back key Biden climate policies like the inflation-reducing bill, $369 billion in tax breaks and clean energy subsidies.

As a result, renewable energy stocks, represented by the iShares Global Clean Energy ETF ICLN, rose,
Investors will continue to be under pressure after a tough 2023, said Tim Urbanovich, head of research and investment strategy at Innovator ETFs.

Last year, the renewable energy sector experienced one of the most difficult years in its short history due to supply chain issues, rising financing costs, and a noticeable slowdown in secondary market transactions. ICLN fell for three straight years between 2021 and 2023, after posting an annualized return of more than 140% in 2020 on Biden's election win, according to FactSet data.

Meanwhile, utilities, which have been betting on renewables for years, have retreated since 2023, as the interest rate-sensitive sector becomes less attractive compared to US government debt and money market funds. The utilities sector in the S&P 500 XX:SP500.55 is the worst-performing sector in the large benchmark SPX so far this year, down 4.7% compared with the S&P 500's 2.5% advance year to date, according to FactSet data. .

“A lot of these names have been supported by massive subsidies, which if we see a Trump presidency, would be much less favorable,” Urbanovich told MarketWatch by phone on Wednesday.

Conversely, Urbanovich said Trump's proposal to increase investment in fossil fuels and eliminate regulations aimed at accelerating the transition to electric vehicles may be supportive of traditional energy ETFs that track oil and gas companies.

The SPDR Oil and Gas Exploration and Production ETF The sector is down 1% so far in January 2024, according to FactSet data.

“It's important to either create or add a position in those energy companies, especially a lot of the oil and gas names, simply because they've been so beaten down, so their initial valuations are so low,” Urbanovich said. “This spring is eventful, and these companies will do very well” if Trump is elected.

be seen: Stock market investors are facing an ugly election season. Can bulls feel comfortable in history?

Sectors exposed to international trade

Trump has made clear that he plans to double down on his “America First” agenda, insisting that he will establish a system of 10% tariffs on most foreign goods.

The threat of tariffs rocked global markets in 2018 and 2019. The iShares MSCI Mexico ETF EWW fell 16.5% in 2018, while the iShares MSCI China ETF MCHI fell 21% over the same period but rebounded again in 2019 after the US and China resumed trade talks. According to FactSet data.

be seen: A research center says that Trump's proposal to impose 10% tariffs would represent a $300 billion tax on Americans.

Urbanovich wondered whether Trump would actually impose a 10% tariff if he won again, as core inflation in the United States still hovers around 4%, compared to less than 2% six years ago.

“I would be very curious to see whether or not he tries to follow through with those policies, because the American people don't like the inflation that we're dealing with right now,” he said. “The market will not look at this favorably.”

be seen: Wall Street is already weighing the potential market impact of a Trump presidency

Defense and space sectors

However, one potential winner is stocks in the defense sector, said Isaac Boltanski, managing director and director of policy research at BTIG. He said in a note to the client on Saturday that there would be much more support for military spending overall with a Republican in the White House.

iShares US Aerospace & Defense ETF ITA,
Which tracks U.S.-listed manufacturers, assemblers and distributors of aircraft and equipment for the defense industry, rose 18.9% and 33.9% in the first two years of Trump's presidency between 2016 and 2020, respectively, according to FactSet data. This compares to progress of only 8.5% and 8.8% in the first two years of Biden’s term.

Urbanovich said defense stocks would be “insulated from the margin pressure” occurring in other stock market sectors where there is “huge demand” for aircraft and equipment, especially in light of rising geopolitical tensions.

“they [defense stocks] “We will continue to weather price increases and maintain growth margins compared to where they are now,” he said. “They're not just military defense stocks, but I expect them to be treated as defensive for the next couple of years.”

be seen: That's the mistake investors make when they think about a second Trump presidency, say strategists at UBS

As always, here's a look at the highest- and lowest-performing ETFs over the past week through Wednesday, according to FactSet data.

The good…

…and the bad

New ETFs

• Exchange Traded Concepts on Wednesday announced the launch of four energy-related ETFs: the Range Global LNG Ecosystem ETF LNGZ, the Range Nuclear Renaissance ETF NUKZ, the Range Global Coal ETF COAL, and the Range Global Offshore Oil Services ETF OFOS.

• BondBloxx Investment Management on Thursday announced the launch of three corporate bond ETFs, the 1-5-year BondBloxx BBB Exchange-Traded Corporate Bonds (ETF BBBS), the 5-10-year BondBloxx BBB Exchange-Traded Corporate Bonds (ETF BBBI). and the BBBI Corporate Bond ETF for 10 years and above. The funds represent a “first of their kind,” providing investors with “precise exposure” to target maturities of BBB-rated corporate bonds, the company said Thursday.

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