The other day my seventeen year old son finally asked me one of the questions I dread most these days: "What stocks do you think will do well with Trump as President?" I'm not sure why that particular question rubs me the wrong way; perhaps it's because I don't know the answer.
But I do know that the markets are a whole lot more complicated, and convoluted, than most of us may believe. And to make any presumptions about what will happen over the next four years, and what names will prosper, is a fool's errand in some cases (at least for this fool).
When Obama was elected, there were segments of the market that investors believed would be decimated, due to both policy and rhetoric. Some of the results were surprising, others were not. The coal industry was all but destroyed, due primarily to tougher regulations by the EPA, (lower natural gas prices also contributed) and companies such as Arch Coal (ARCH) and Peabody Energy (BTTUQ) filed for bankruptcy. Now coal stocks are surging following the election, Arch has emerged from bankruptcy, and Peabody may be close. The markets are pricing in a rebirth of the industry, and time will tell.
The fate of gun manufacturers and retailers, however, which did not suffer the same fate as coal under Obama, surprised many. He was unable to pass legislation, but his rhetoric from the bully pulpit arguably drove gun sales through the roof.
I'm not sure he understood this basic economic principle: If you want to create a buying frenzy among consumers for certain goods, threaten to take them away. I saw it first hand when there was a run on, and shortage of, ammunition. Obama ultimately became the gun industry's greatest salesman. Ever. Gun makers such as Smith & Wesson (SWHC) , and Sturm, Ruger (RGR) , and retailers like Cabela's (CAB) soared ten-fold during Obama's presidency.
My presumption, at this point, is that gun-related names will not do as well under a Trump administration, despite the fact that he is much more pro-gun than Obama. The run on guns may be over, now that the fear of regulation has abated.
I tried to explain to my son that once the election results were in, the markets went to work, immediately, trying to determine winners and losers and pricing them accordingly. Markets are forward looking, right or wrong, and they won't wait until inauguration day in order to weigh in on potential winners and losers. That process started on Nov. 9.
Private Corrections name CoreCivic (CXW) is a great example. The stock fell off a cliff in August, after the cancellation of a federal contract with the DOJ's Bureau of Prisons. That, coupled with anti for-profit prison rhetoric from Hillary Clinton, presumed to be a shoe-in at the time to win the presidency, doomed shares and sent investors running for the hills.
Since the election, shares have risen 76%. What happens from here remains to be seen for CXW. The stock is still about 30% below August levels, but its recent pummeling made it clear that a dividend reduction was coming. That officially happened yesterday, when the company announced a $0.42 dividend -- a 22% cut, but less than I expected. That equates to a 6.7% indicated yield.
No matter what happens from here, one thing is sure: Market dynamics never get old. Sometimes down is up and up is down.