Is the “Make America Great Again” train finally grinding to a halt? It seems that the Midas touch that propelled then-candidate Donald Trump to the presidency is waning. Naturally, popularity for politicians have an ebb and flow, and the current administration is no different. Still, for hard-hit construction stocks, the President’s promises of returning American infrastructure to greatness is looking like a long shot.
The first point of concern for construction stocks is Trump’s approval rating. According to a recent Gallup poll, only 36% of Americans approve what the President is doing. That’s a new low for the former real estate mogul, who had earlier registered a bottom level of 37%.
Although it’s not the absolute lowest — a number of presidents have fallen into the twenties — it’s not what you want to see so early into the administration.
The blistering attacks against Washington corruption and unfiltered criticism of our international partners solidified Trump’s popularity among conservatives. This burned plenty of bridges, and to make things worse, President Trump is in no mood to make nice. Bipartisanship seems to become an antiquated relic, which is problematic for construction stocks. Rebuilding our infrastructure will require cooperation, but that might never come.
The latest health care reform fiasco is all it takes to imagine what the next four years will be like. Despite pushing for his promise to “repeal and replace” the Affordable Care Act, several Republicans were not moved. Without the support of conservatives, the proposed health care reform plan was dead in the water. Worse yet, no Democrat voted in favor of the proposal.
This deep-seated animosity for President Trump is a major blow to construction stocks. The industry overall has been making steady gains since the Great Recession. But without the impetus to move forward, construction stocks might lose some of these hard-fought gains. After all, if Trump is going to meet opposition on key issues like health care, it’s nothing for the Democrats to oppose him on banal issues like infrastructure.
Like it or not, the “Trump rally” has lost steam for manufacturers. As a result, these three construction stocks are definitely not making you great again.
Construction Stocks to Sell: Caterpillar Inc. (CAT)
Nothing better represents the restoration of American infrastructure than CAT. During the campaign, Trump half-jokingly declared that he would build the controversial U.S.-Mexico wall with CAT tractors and equipment.
It’s that kind of brash patriotism that won the former reality TV star the White House.
At the same time, CAT stocks represents the liability involved with having a blowhard as a leader. For example, company shares suffered a massive decline between late July of 2014 through the end of January 2016. Not coincidentally, commodity markets heavily corrected during this time period. So while hardcore conservatives yell “America first!,” it’s increasingly difficult to maintain such a nationalistic stance. It might work in a political campaign, but for construction stocks like CAT, they thrive on economic partnerships.
When Trump got elected, the play on construction stocks was incredibly simple. Place all your bets on American infrastructure because international relations are a lost cause. However, it’s becoming increasingly clear that Trump has severely declining domestic support — even among his Republican base. With nowhere to go, CAT stock is in a serious bind.
The constant shout-outs during the 2016 campaign may have flattered Caterpillar, but today, that relationship has definitely soured.
Construction Stocks to Sell: Deere & Company (DE)
Indeed, if it weren’t for Caterpillar’s penchant for building big golden tractors, DE stock would nab pole position. Deere & Company received plenty of attention from the then-real estate mogul. Along with Caterpillar, DE was set for an exclusive contract in building “the Wall.”
The problem now is that this contract is an illusory promise. If Trump failed in his bid for health care reform, he stands zero chance of getting bipartisan support for the border wall. For one thing, Mexico would never pay the bill as Trump once suggested. Second, Trump’s approval rating will likely hit an all-time low should he force the issue. With midterm elections coming up, a younger Donald Trump who wrote “The Art of the Deal” would suggest keeping a low profile.
But it’s not so much the border wall as it is the underlying dilemma. We have never had such a contentious presidential administration. It will be a miracle if anything gets done. And that pessimism is what’s presently hurting DE stock. After the euphoria of the Trump rally, Deere has largely gone sideways since the tail end of January.
Things certainly looked bright for construction stocks and the national infrastructure when Trump unexpectedly grabbed victory. However, that optimism is fading quickly for DE stock.
Construction Stocks to Sell: Columbus McKinnon Corp. (CMCO)
Nevertheless, that does not impugn upon the importance of CMCO stock. As a designer and manufacturer of construction and industrial equipment, Columbus is a bellwether of our national infrastructure. Simply put, if demand exists for construction stocks, CMCO would be a key beneficiary.
The major challenge facing Columbus is that growth in total construction spending is becoming pedestrian. For example, between 1994 through the end of 1999, construction spending growth averaged a robust 7.5%. During the current decade, we’re averaging just under 4%. Even worse, construction spending growth was only 4.9% in 2016, whereas the average in the previous four years was a whopping 9%.
If CMCO and other construction stocks are to have any hope of moving beyond the gains of the Trump rally, total spending must improve. That appears less likely given the gridlock in Washington. It’s no surprise, then, that CMCO is down roughly 10% year-to-date.
Infrastructure isn’t exactly a hot-button issue, either politically or socially. The Trump opposition will inevitably stymie his infrastructural proposals, which forces construction stocks on the defensive.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.