Conservative politicians may be loathe to admit it, and ardent supporters likely never will. Still, it has to be said — the Washington honeymoon of President Donald Trump may be over. While it’s widely acknowledged that Trump was our most controversial presidential candidate in modern history, he had enough broad appeal. Primarily, this centered around his (often self-professed) business acumen. This may not have been its top choice, but Chevron Corporation (NYSE:CVX) was willing to play along.
Arguably, CVX and other American oil names like Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP) and Occidental Petroleum Corporation (NYSE:OXY) were primed to be the biggest beneficiaries of the Trump administration.
First, there was that whole spiel about making America great again. That could mean a lot of things, but to most people, it equates to good jobs with a future. Thus, it wasn’t unreasonable to believe that Chevron and other energy stocks were going to get some bigly love.
Politicians are always hot on rhetoric, and not so much on action. Everybody talks about creating new jobs, but the end result is usually disappointing. With Trump, there was at least a concrete idea — lower regulations. That might as well be a blank check for CVX and competing energy stocks. Not only is the President not an environmentalist, he cracked jokes about global warming being a Chinese hoax.
What a difference a week can make. With Trump hitting a majority disapproval rating in record time, CVX stock no longer looks like a sure bet.
A Mountain of Challenges for CVX
Let’s address the wide-ranging concern — basically, everyone is afraid of President Trump. Of particular concern is the executive order banning immigrants from specific, Muslim-majority nations. Although not directly related to Chevron and energy stocks, it demonstrates how unpredictable this administration truly is.
For example, civilian informants and translators aiding U.S. occupation forces in the Middle East were denied safe harbor. Such coldness or lack of administrative discipline sent a chill to the markets.
The other problem is the much-vaulted corporate tax cut. According to Trump’s campaign website, he promised to reduce the business tax rate from 35% to 15%. At the time, it was enough for many investors to jump on CVX stock.
Unfortunately, there are rumblings that such tax reforms won’t be implemented until 2018. That also includes the repatriation holiday that specifically piqued Wall Street’s interest. And to the first point, Trump is sending the message that poorly conceived ideas take precedence over vital ones.
More critically for Chevron stock, the oil markets haven’t moved that much. Bearish supply data combined with evidence of increased U.S. shale oil production have capped upside momentum. In addition, the much-feared, much-hyped OPEC supply squeeze has been anything but impressive. There are suggestions that Organization of the Petroleum Exporting Countries was just flexing its muscle, and nothing really to back up the show of strength. By extension, energy stocks — which are margin sensitive — have tumbled.
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To confirm the bearishness, CVX stock fell below key technical levels. Last month, Chevron stock lost 5.5% in the markets. Given the sharp losses in the trailing week, there’s a real chance that the oil giant could fall even further.
Obviously, the data doesn’t look encouraging for Chevron stock. However, I’m not ready yet to give up on CVX.
CVX Stock Still Has What It Takes
Primarily, we have to acknowledge that Chevron is built to a higher tolerance than its rival energy stocks. The company pledged a $9 billion expense-slashing campaign in 2016. Although painful — what cuts aren’t? — the measures leaned out its unhealthy diet and cleaned up the balance sheet.
Moving forward, when oil prices are forecasted by experts to range between $45 and $65, CVX stock will be okay. In today’s market, that’s a resounding tailwind.
But let’s not leave out the technical reasons why Chevron stock is far from being a loser. Sure, January was a bad month, but here’s the thing — most January’s for Chevron suck! Just look at this current decade in which only two years — 2011 and 2013 — featured positive opening months. The other years averaged a dismal drop of 7%. At 5.5% in the red, this year is not that bad.
Here’s another stat — CVX’s January performances are often poor indicators for the rest of the year. In total, Chevron stock averages a 0.27% decline in January. But annual returns average nearly 14%.
There’s an exception to the above. If CVX stock registers a double-digit loss in January, all bets are off. When this occurs, there’s an 80% probability that Chevron will have a brutal year. The good news, of course, is that this worst-case scenario didn’t happen. That doesn’t guarantee that CVX stock will have a standout year, but at least it has a fighting chance.
Regarding the politics, I’m hoping they’re growing pains. Trump will learn that he can do a lot of good, or a lot of bad with his words. We wish he will favor the former. But either way, Chevron stock is positioned for the long haul.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
