Trump's Deregulation Efforts To Benefit Energy, Oil And Gas Sectors, While AI Frenzy Will Boost FAANG Stocks And Nvidia, Says Fintech Insider

President-elect Donald Trump‘s victory has fueled a rally in equities. This is likely to sustain as the administration plans on “tax cuts and deregulation will lead to higher corporate earnings,” said Yogesh Kansal, chief business officer at fintech company, Appreciate. He added that highly regulated sectors like oil and gas will benefit under Trump’s administration.

What Happened: While tax cuts and deregulation are positive for the stock markets, the Trump administration’s take on immigration and higher tariffs have an opposing effect on the markets.

As per Kansal, with the deportation of immigrants, “the cost of labor will go up for all companies, which basically means the profitability of companies will go down.” Additionally, he said that with tariffs, the “stock prices could be lower” because of a shift in “global demand”.

Morgan Stanley, in its note dated Dec. 3, also cautions that concerns over trade tariffs, immigration policies, fiscal sustainability, and how the scope and timing of new policies may constrain the broader economic outlook. The global financial services firm anticipates growth and innovation, particularly in the technology and natural gas sectors.

Why It Matters: According to Kansal, highly regulated industries like “energy, oil and gas, health care, and banking will be seeing tailwinds” because of the deregulation attempts.

Invesco S&P 500 Equal Weight ETF RSP has risen by 17.3% on a year-to-date basis. While, the iShares Russell 1000 Value ETF IWD and Vanguard High Dividend Yield Index ETF VYM advanced by 18.56% and 18.96%, respectively, in the same period, underperforming the S&P 500 on a year-to-date basis, which has grown by 28.41% in the same period.

On the other hand, ProShares S&P 500 Ex-Energy ETF SPXE grew by 28.85% year-to-date, outperforming the index.

Other analysts have also said that Trump’s victory will lead to a boom in the energy sector. According to Mario Georgiou, CFA and executive director, head of investments at InCred Global Wealth U.K., "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.

As per Morgan Stanley, the energy sector faces a divided future. Trump’s deregulation could benefit traditional energy, but the outlook for oil is uncertain due to potential oversupply and weak global demand, especially from China. In contrast, natural gas may see growth from strong European demand and increased domestic use for electrification and AI-powered data centers. The clean energy sector could face challenges, if Trump rollbacks Biden’s 2022 Inflation Reduction Act tax credits. However, a full repeal seems unlikely due to the benefits for Republican states.

Kansal, on the other hand, was also positive about the technology sector given the rise in the A-I frenzy. “The biggest factor that is driving the U.S. stock market right now is AI. There’s a lot of activity, lots of investment that has gone in because of the expectation of AI increasing productivity,” he said.

However, Georgiou said, “Rising bond yields increase the discount rate applied to future earnings, disproportionately affecting high-growth sectors like technology. We therefore prefer higher quality tech companies, avoiding
highly leveraged, unprofitable tech stocks. This does not make us underweight Technology, as there
are sufficient high-quality companies in this sector to make up the allocation with.”

Major AI payers in the U.S. stock markets include Nvidia Corporation NVDA with a 195.7% year-to-date gain and Microsoft Corp. MSFT with stock gains of 19.6% in the same period.

Amazon.com Inc. AMZN and Alphabet Inc. GOOG GOOGL rose by 51.42% and 26.46% year-to-date, respectively. “So I think in the next 12 months, software as well as hardware, technology industries will do well including FAANG stocks and Nvidia,” Kansal added.

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