Anyone who has been watching the markets for the past two months knows the far-reaching impact President Trump has had on stocks, bonds and currencies. Stock indices soared to all-time highs, bond prices dropped to 52-week lows and the value of the U.S. dollar climbed to highs last seen during the financial crisis.
If it seems like all sectors of the market were touched by the election, they were. President Trump’s campaign promises, if enacted, have the ability to reach every corner of the stock market.
His promised changes to the business tax code would impact every business. His promised changes to the personal income tax code would impact nearly every consumer. His promised infrastructure spending would increase inflation for the entire nation. His promised changes to the Affordable Care Act (ACA) would impact nearly every employee. His promised relaxing of government regulations would affect nearly every employer. The list goes on and on.
Looking at the market through this lens, there is not a company or stock that will not be impacted in some way by the Trump presidency. However, not all companies will be impacted to the same extent. Some companies are more vulnerable — for good or bad — to the promised policy changes than others.
For instance, large banks and other financial institutions — like Goldman Sachs Group Inc (NYSE:GS) — have been the unrivaled beneficiaries of a Trump presidency up to this point, because so many of the president’s suggested changes benefit the banks’ bottom lines. Rising inflation, lower corporate taxes and decreased regulation all benefit the banks.
Conversely, biotech companies — like Biogen Inc (NASDAQ:BIIB) — have struggled in the aftermath of the presidential election because the uncertainty swirling around what will eventually replace the ACA after the Republican-controlled Congress repeals it, coupled with the pointed Twitter Inc (NYSE:TWTR) and interview criticisms President Trump has issued regarding the high price of pharmaceuticals and other medical treatments, has created a tremendous amount of uncertainty in the healthcare industry.
So which companies are less vulnerable to the potential policy changes and political whims of the president?
While it’s important to note that no company is immune from the potential threat of a targeted Twitter tirade from the president should it happen to draw his ire, there does seem to be a group of stocks that could bullishly go on its merry way during the first half of 2017 without having to look over its shoulder every morning to see if some new policy decision may threaten to derail its progress: the “FANG” stocks.
The FANG stocks — Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) [formerly Google, hence the “G”] — have been Wall Street darlings for the past few years. The shift consumers have made to living in an online world for everything from their social networking to shopping has pushed the valuation of these companies ever higher as traders bet on this trend continuing, regardless of what else happens in the economy.
The FANG stocks took an initial hit after the results of the presidential election were announced in early November, as traders started taking profits on some of their more lucrative positions and rotating that money into the financial sector and other sectors that were poised to rally following President Trump’s win. Nobody was doubting the strength of the FANG stocks — they just needed to free up cash to invest in even hotter stocks at the time.
Once the initial rotation was complete, investors started coming back to the FANG stocks, which were then trading at much more favorable valuations, and started buying them up. After all, whatever happens to inflation, whatever happens with the tax code, whatever happens with health care, consumers are going to continue connecting with friends on Facebook, buying more stuff on Amazon, watching videos on Netflix and searching for information on Google.
We expect the FANG stocks and other tech stocks like them — stocks like Apple Inc. (NASDAQ:AAPL) and Nvidia Corporation (NASDAQ:NVDA) — to continue to do well during the next few months. We will certainly have to keep watching what the Trump administration does in the future (watching the net neutrality debate is going to be especially important for NFLX), but the traders on Wall Street aren’t going to abandon their perpetual winners just yet.
InvestorPlace advisors John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.
