Donald Trump’s win is positive for the financial and energy sectors as the “pro-growth effects of fiscal stimulus currently outweigh the inflationary risks in the near term” according to an analyst.
What Happened: Mario Georgiou, CFA and executive director, head of investments at InCred Global Wealth U.K., in an exclusive conversation with Benzinga, described tax cuts and deregulation as tailwinds to the markets. He considers inflationary policies such as tariffs and immigration impacts as headwinds, leading to a steepening yield curve, and higher term premiums.
“Financials offer an attractive risk-reward and that this recent post-election rally has room to run,” added Georgiou. According to him “financials are not only well positioned to capture the benefits of the above-mentioned Trump tailwinds, but are also less impacted / would even benefit from the Trump headwinds.”
Despite a few dips, the equity markets have been trading higher than the pre-election levels after President-elect Trump’s victory. The S&P 500 has increased by 3.22%, rising from $5,782.76 on Nov. 5 to $5,969.34 as of Friday’s close. The SPDR S&P 500 ETF SPY which tracks the S&P 500 Index has had a similar momentum, according to data from Benzinga Pro.
Meanwhile, Financial Select Sector SPDR Fund XLF, Vanguard Financials ETF VFH, iShares U.S. Financials ETF IYF, and SPDR S&P Bank ETF KBE, have returned over 30% year-to-date in 2024 outperforming the S&P 500 Index’s 26% run.
Other sectors that Georgiou prefers, include energy. According to him “deregulation supporting oil production and geopolitical risks could sustain elevated oil prices and relative valuations are attractive.”
Even though the energy sector has underperformed the broader markets in 2024, “fundamentally, companies are shareholder friendly with 8-12% shareholder yields, have strong balance sheets with low net debt to EBITDA ratios and high free cash flow yields of 6.50% and above,” he adds.
Invesco S&P 500 Equal Weight ETF RSP, iShares Russell 1000 Value ETF IWD, Vanguard High Dividend Yield Index ETF VYM and ProShares S&P 500 Ex-Energy ETF SPXE have all underperformed the S&P 500 on a year-to-date basis.
Why It Matters: As markets hit their 51st record high of 2024 and the S&P 500 Index crossed 6,000 points, some analysts caution that tariffs could pose risks to equities and suggest that the market may be overvalued.
“The prospect of tariffs isn't obviously good for equities, while it's clearly good for the Dollar," former Goldman Sachs FX strategist and senior fellow at Brookings Institution, Robin Brooks said in an X post. "Markets initially got this wrong, driving stocks up sharply right after Nov. 5,” he added.
However, Georgiou is “cautiously optimistic” about the markets, he said “a neutral to fully invested equity allocation is warranted, with a focus on sectors benefiting from Trump's policies, whilst always maintaining our core investment principles, which is a focus on fundamentals, quality, and risk management.”
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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