A below-the-radar deal that expands a European construction company's U.S. footprint could signal a return to Wall Street's hottest bet: the so-called "Trump Trade."
CRH plc (CRH) , a London-listed group based in Ireland, was one of the U.K. stock market's top-performing names Thursday after it agreed to shell out $3.5 billion for Overland Park, Kansas-based Ash Grove Cement Inc. (ASHG) . CRH, North America's largest building-materials company and the second largest worldwide, earned about half of its profits from the U.S. market last year.
The merger could suggest that investors and company bosses are positioning themselves for a return of the Trump Trade, which investors use a shorthand description for a sharp rise in "old-economy" stocks focused on government infrastructure spending and broader commercial construction. The Trump Trade is also associated with small-cap U.S. stocks that many see as best-placed to take advantage of major changes to America's corporate tax code. In fact, the Russell 2000 -- the benchmark of small-cap U.S. stocks -- has risen nearly 7% over that past month, or nearly double the gains that the broader S&P 500 and Dow Jones Industrial Average saw over the same period.
That's a big change from the summer, when research from Bespoke Investment Group issued research critical of the Trump Trade. Bespoke found that large-cap financials and industrials gained the most between Trump's November 2016 election and January 2017 inauguration, but got dumped the fastest as the president lurched from one self-made crisis to another during his first few months.
So what's brought this seemingly dormant trade back to life? Answer: Trump's recent overtures to Democratic leaders on issues such as the Deferred Action for Childhood Arrivals program (DACA) and a suspension of the federal debt ceiling. Those moves have many wondering if the president is laying the groundwork for bipartisan cooperation on some form of the "phenomenal" tax plan that Trump touted earlier this year.
In fact, a cynic would argue that Trump's recent, vocal support for the Graham-Cassidy healthcare-reform bill -- which is certain to be rejected by Senate Democrats if it ever comes to a floor vote -- is merely a Machiavellian move. Critics say it will allow him to approach Democratic Senate minority leader Charles Schumer (D.-N.Y) and House minority leader Nancy Pelosi (D-Calif.) later this year and say: "OK, you win on healthcare. Now give us something on tax that will be good for everyone heading into the midterm elections."
China has a business tax rate of 15%. We should do everything possible to match them in order to win with our economy. Jobs and wages!
-- Donald J. Trump (@realDonaldTrump) September 14, 2017
The president's newfound allies across the aisle might also help with another electoral ambition: a $1 trillion spending bill that would reshape the country's creaking infrastructure and create hundreds of thousands of new jobs.
The devastation wrought by Hurricanes Harvey and Irma, which by some estimates will cost around $500 billion to repair, offer both the president and the country's most-senior lawmakers a chance to appease two critical electoral states -- Texas and Florida -- while simultaneously kick-starting a post-storm rebuilding process that will need federal money regardless of who takes the credit for spending it. Furthermore, with the Federal Reserve poised to raise interest rates later this year -- and three times in 2018 -- the president can plausibly argue that the "cheap money" window is closing fast.
I wrote last month that Trump's sure-footed response to Harvey, his measured reaction to North Korea's missile testing and stronger-than-expected U.S. economic growth might have saved his fledgling presidency. If that turns out to be true, it might have revived the Trump Trade, as well.
