The Trump administration has faced mounting setbacks in recent weeks. The much-heralded healthcare reform didn’t get enough votes to pass. Serious infighting has strained relations among Trump’s advisors. Popular market friendly initiatives such as tax cuts have been delayed. Overall, the last month or so has presented numerous reasons to grow nervous about the health of the so-called Trump trade.
However, the market had managed to shrug off these concerns. Powered by strong earnings, the S&P 500 notched a new all-time high Tuesday. Wednesday, though, these political concerns finally shattered the market’s calm.
The Dow Jones Industrial Average tanked almost 400 points, and the Nasdaq Composite took even heavier losses on a percentage basis. The political concerns went from background noise to main event following news that FBI director James Comey, whom Trump fired, appears to have written a memo that raises issues about Trump’s handling of an investigation.
While it’s too early to forecast how this political drama will play out, we can start updating the investing outlook. It seems clear that President Trump will face an ongoing investigation. Numerous folks are suggesting impeachment at this point. Even assuming Trump survives, his agenda is imperiled. A Congress focused on deposing witnesses in Trump’s controversy won’t be passing health-care reform, tax cuts or infrastructure spending.
As the market backs Trump stimulus out of its earnings estimates, here are the five Dow Jones stocks that could fare the worst.
Dow Jones Stocks to Sell: Boeing Co (BA)
Boeing Co (NYSE:BA) has soared: Since October, the stock has run up from $130 to as high as $187.
But these gains could be fleeting. Boeing is a classic Trump play. For one, Trump loves the military. He talks about making it strong again frequently. BA, along with U.S. peers such as Lockheed Martin Corporation (NYSE:LMT), should garner significantly more military orders while that Trump remains in office.
Sure, if Congress does impeach Trump, the next president would likely be Mike Pence, who tends to share the same military views. However, a president Pence would likely face a hostile political scene with his party set to take massive losses in the 2018 midterms.
In such an environment, it might be difficult to get his preferred budget passed. Additionally, Trump has his unique pro-American jobs approach. This bias is something that benefits Boeing greatly, since they haven’t offshored as much of their production as competitors.
Long story short, BA stock has a lot of downside if Trump loses political power.
Dow Jones Stocks to Sell: Apple Inc. (AAPL)
Investors spurned Apple Inc. (NASDAQ:AAPL) on Wednesday. The world’s largest company lost almost twice as much, on a percentage basis, as the S&P 500.
What explains the outsized loss?
The most likely explanation is that investors are fretting about Apple’s offshore cash. Apple’s cash pile has topped $250 billion, and most of that currently isn’t available to the company for domestic use.
Trump has proposed a heavily discounted tax rate for companies to repatriate cash. This, according to Pacific Crest, was going to allow Apple to double or triple its dividend. But with Trump’s political power waning, that repatriation benefit may be a lost cause. And if so, recent buyers of AAPL stock who expected a dividend surge will be disappointed.
Dow Jones Stocks to Sell: Caterpillar Inc. (CAT)
Caterpillar Inc. (NYSE:CAT) has offered investors an incredible ride since early 2016. CAT stock has rallied as much as 70% off its lows.
That’s amazing for a blue-chip company in such a short time-span.
However, the party could be coming to an end. Much of the enthusiasm hinged on two elements. The first was a rebound in commodity prices; this is looking increasingly shaky.
Many of the metals have sunk so far in 2017, as Trump’s re-inflation trade loses steam. And more directly, Caterpillar was supposed to get new business helping construct Trump’s infrastructure. He talked incessantly of building walls, airports, highways and so on. That would have generated a lot of business for Caterpillar.
With Trump’s ability to get legislation passed currently throttled, however, look for CAT stock to stall out.
Dow Jones Stocks to Sell: Chevron Corporation (CVX)
Chevron Corporation (NYSE:CVX) is another potential Trump loser. Yes, CVX stock hasn’t performed that well recently. However, that’s arguably more due to lackluster performance of crude oil than anything coming from Washington.
Trump campaigned on supporting fracking, coal and other such fossil fuel industries. He has voiced open skepticism of climate change, and seems not particularly inclined to support alternative energy. Trump’s America is likely to be one where companies such as Chevron have favorable tax incentives to look for oil.
And the EPA is unlikely to hassle oil companies too much either. In the long-run, you can argue Trump’s pro-energy policies might drive down the price of oil; however, at least in the short-term, a weaker Trump is probably bad news for U.S. oil companies.
CVX stock gets the spot on this list, rather than Exxon Mobil Corporation (NYSE:XOM), since Exxon’s dividend is far more sustainable at current energy price levels.
Dow Jones Stocks to Sell: JP Morgan Chase & Co. (JPM)
Investors with heavy positions in the American financial industry had an unpleasant Wednesday.
The sector got clobbered, and heavyweight JPMorgan Chase & Co. (NYSE:JPM) was no exception. Investors hit JPM stock for an almost 4% loss on the day.
There is good reason for this sudden fearfulness in the financial sector. Interest rates have tanked as the Trump trade has lost its footing. The all-important 10-year treasury yield has fallen from greater than 2.6% in March to just 2.2% now.
Given that short-term rates are flattish, and banks make a spread between the 10-year and short-term rates, that’s 40 basis points of profits that have disappeared since March. And going forward, the outlook for rate hikes will dim if Trump’s political power further fades.
Analysts suggested that Trump’s policies would function as economic stimulus. By putting more money in consumers’ pockets, we’d also likely see more inflation over time. This gave the Federal Reserve reason to want to hike interest rates more quickly.
If Trump can’t pass his legislative agenda, that stimulus disappears, and the Fed’s motivation to hike rates multiple times this year goes with it. Already, the odds of a June rate hike are fading, and that’s not good news for JPM stock.
Ian Bezek owns a position in CAT stock in a permanent buy & hold portfolio. Otherwise, he’d sell it. He holds no positions in any of the other aforementioned stocks. You can reach him on Twitter at @irbezek.
