The “Trump trade” …

If I had a dollar for every time that I heard that phrase this week, I probably wouldn’t be writing this article. I’d probably be picking out a tropical island to retire to.

The election results surprised a lot of people.

The polls and political pundits pointed toward a neck-and-neck race that would come down to narrow victories in a few swing states. The Senate would likely flip red. The House would flip blue.

Many had no idea who would end up in the White House. Some thought we’d be counting votes for weeks.

That didn’t happen… obviously.

The Senate did flip red. But the House – while not official as I write – will likely be red as well. Call it what you want – a “red wave,” a blowout, a landslide. But it was certainly decisive.

And now, the questions: What does it mean for stocks? What is the best “Trump trade”?

There’s plenty of ideas out there.

Today, I’ll share my favorite one.

It’s (Still) Big Tech

Commentators were talking about going long small-caps, or short Chinese stocks. Traders were scooping up anything that would benefit from deregulation and casting companies related to ESG into the garage.

Another idea is short oil/long gold. That’s because Trump’s been pretty clear about his goal to get energy costs down. And if inflation returns as a result of tariffs, gold could climb higher. 

And money was flowing back into the market in a relief rally now that the election has settled and is behind us.

Remember, Wall Street hates uncertainty.

I think a lot of traders were bracing for a contested election and political strife that could have bled out into the broader economy. But Trump’s clear victory erased those fears. Wednesday’s trading session was a wild one, with all three of the major U.S. market indexes rocketing up to new all-time highs.

If Wednesday’s trading session is any indication of what to expect moving forward, volatility is likely to be a popular trade under the new Trump administration.

But as for me, my favorite “Trump trade” is a fairly simple one.

I’m still focused on Big Tech. And I’ll tell you why…

Still Magnificent

The red wave bodes extremely well for several of the famous Magnificent Seven stocks. 

The biggest boon for Big Tech and, potentially, the economy at large, under Trump is going to be deregulation.

Back in July, I said: 

If Donald Trump is elected as America’s 47th president, there may be one woman responsible for putting him over the top. And it’s probably not who you think.

It’s not Nikki Haley. It’s not Melania. It’s not even Ivanka. It’s Lina Khan, Chair of the Federal Trade Commission (FTC).

I went on to show that Khan had proven very effective at stalling mergers and acquisitions (M&A) activity, particularly for the Big Tech companies.

On Wednesday, CNBC’s Bob Pisani put it well, “Lina Khan is one of the least liked women on Wall Street – people on Wall Street. The other one is Gary Gensler.” 

Elon Musk was arguably Trump’s biggest supporter on the campaign trail. Federal Election Commission filings show that he donated roughly $119 million to the political action committee (“PAC”) that he set up to help Trump win the White House.

Musk wasn’t giving this money away for nothing. He wants influence. And he supports Trump’s deregulatory stance. I expect to see Trump refresh the regulatory bodies in D.C., likely bringing in people who aren’t so antagonistic to Big Tech.

The President-elect has already talked about using Musk’s operational expertise to cut the fat from Washington’s bureaucracy. In doing so, Musk says that he could save the U.S. $2 trillion a year in unnecessary spending. Musk’s involvement could be a win-win for the U.S. industry and the country’s bottom line.

The market certainly seems on board…

Tesla (TSLA) shares shot up by 14.75% after Trump’s victory, adding $100 billion-plus to that company’s market cap. The thought that Musk will have a direct line into the Oval Office any time he wants it bodes well for his company.

But that’s not even my favorite idea amongst the Magnificent Seven stocks.

To me, companies that are currently under infestation from federal regulators, such as Alphabet (Google’s parent company), Amazon, Meta, Microsoft, and Nvidia stand to benefit – in a big way – from Trump’s deregulatory stance. 

Trump’s relationship with some of the Big Tech firms has been… frosty, to say the least.

But one of Trump’s primary focuses is likely to ensure that American industry – and especially technology – beats out China and maintains global leadership.

Like them or not, Big Tech firms are the gems of the U.S. economy. I’m not a mind reader, but I think Trump agrees.

Trillion-Dollar Club

In a 2020 press conference Trump said, “For 144 days, we set a record stock market. It means 401(k)s, it means jobs. Four trillion-dollar companies: Apple, Amazon, Google, Microsoft. You have MAGA. The trillion-dollar club.” 

In October, regarding the Department of Justice’s antitrust case against Alphabet and threats to break up the company, Trump said, “If you do that, are you going to destroy the company. What you can do without breaking it up is make sure it’s more fair.”

There may not be a greater national security matter playing out right now than the AI battle. That’s a race that Americans cannot afford to lose.

Deregulation will accelerate innovation in the space. And allowing these companies to invest the hundreds of billions of dollars on their balance sheets in M&A markets would enhance their capabilities as well.

With Khan at the helm of the Federal Trade Commission, Big Tech M&A slowed significantly. Heck, Khan even managed to stave off Amazon’s acquisition of iRobot, the maker of robotic vacuum cleaner Roomba.

I think that changes now.

Big Tech CEOs were quick to congratulate Trump on his victory this week…

What a difference four years makes…

Congratulations from other tech titans, such as Apple’s CEO Tim Cook, former Amazon CEO Jeff Bezos, OpenAI CEO Sam Altman, and others, have come in as well.

It’s clear that the leaders of Silicon Valley want to foster a much different relationship with Trump’s administration than they had with Biden’s. They’re hoping it’ll be a more productive one.

Given the strategic importance of the AI race – and Trump’s strong stance against China – I think that’s going to occur.

These Big Tech companies are also sitting on mountains of cash that they’d love to spend. 

How much cash? This much (as of their latest quarters):

  • Alphabet: $93.2 billion 

  • Apple: $162.1 billion 

  • Microsoft: $80 billion 

  • Amazon: $71.6 billion 

  • Meta: $70.9 billion 

Having the opportunity to unleash that capital to buy growth potential is bullish for these stocks. Right now, roughly 43% of the S&P 500 Index is under investigation by federal regulators (with most of these lawsuits being pointed at Big Tech firms).

I believe that this negative pressure will dissipate under Trump, which is why Big Tech is my favorite “Trump trade.”

Regards,

Nick Ward,
Analyst, Wide Moat Research