The Election: What Investors Must Know

Popular investment media's not telling you.

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It’s official: Donald J. Trump has joined Grover Cleveland as the only two US presidents to be defeated as an incumbent, and then to return to the White House four years later.

The reasons behind the president-elect’s comeback win have now graduated to the realm of cocktail conversation. If you’re interested in my two cents, the outcome had a lot more to do with who didn’t vote than who did: Almost one in seven 2020 Biden voters didn’t pull the lever for Harris in 2024.

But be that that as it may, elections have consequences. And there’s no doubt the results this time will have a profound impact on the US economy, and by extension on those of us who invest.

There’s a big difference, however, between identifying likely policies and successfully forecasting what their impact will be—i.e. determining what indeed is worth investing in. And unfortunately, the record of investors doing that accurately is positively abysmal. In fact, it’s fair to say election based investment strategies have historically been a losers’ game.

Take energy, a campaign “issue” in 2016, 2020 and again in 2024. As he did this year, candidate Trump in 2016 professed to be the friend of fossil fuels, going so far as to declare the end of the “war on coal.”

Yet from 2017 when he took office until he left in early 2021, President Trump presided over the most rapid decline in US coal-fired power generation in history.

For some of us, “Drill baby drill” was a far more compelling slogan than “Make America Great Again.” Yet as far as investors were concerned, oil and gas stocks under Trump were an utter disaster—in fact the worst performing sector in the S&P 500 by far. And the biggest winners of the first Trump era were renewable energy stocks.

The stars of the Biden years in contrast have been oil and gas stocks, far and away the S&P 500’s top performing sector during his term. In fact, it’s not even close: The S&P 500 Energy Index’ gains during the Biden years were nearly triple the Big Tech Nasdaq 100! And US oil and gas output has repeatedly set new records, even as shale companies have maintained unprecedented production discipline.

As for green stocks, they’ve been among the stock market’s absolute worst performers since Biden took office. This summer’s coup de grace: The liquidation of SunPower Corp, the company once considered the gold standard for the rooftop solar industry.

That isn’t to say Trump didn’t do everything in his power to help coal in his first term. And it’s undeniable that Biden provided unprecedented support for renewable energy, while increasing regulation on fossil fuel production.

But the last 8 years of energy sector history is a pretty good example of the limits of government power when it comes to trying to redirect major industries. And that’s a very good reason to avoid getting euphoric or apocalyptic about what the second Trump administration may or may not try to do with energy—or really any industry.

But this time will be different you say. Trump has learned how to wield the levers of power from his first term in office. He won’t make the mistake of bringing on mandarins with questionable loyalties. And after four years out of power, he’ll know where to take action immediately for maximum impact.

All of that, however, was also true for the Biden administration—which was basically the Obama Administration back for another spin in its first years. They acted fast and got things done. And the green boom still went bust, while fossil fuel investors have had their best years probably since the 1970s.

Don’t get me wrong. There are still many likely election consequences are worth betting real money on. They’re just not the earth shattering prognostications getting all the press right now.

In fact, a good rule of thumb is the more grandiose the forecast, the less likely it is to pan out profitably.

Take the so-called Trump trade of selling US bonds and anything valued in foreign currency to buy US stock—on the idea his policies will inevitably bring inflation and Federal Reserve rate increases.

Quite a few high value, dividend-paying stocks are cheap. But the preferred vehicles of this trade are the Big 6 Tech stocks, which are historically unmoored from business value and therefore vulnerable to disappointment. They’re also once again nearly one-third of the S&P 500 and its related ETFs that are the core of most Americans’ portfolios.

The consensus is recession risk is very low now. But a meaningful drop in prices of the Big 6 could bring down the whole stock market, and with it the economy. That would mean lower interest rates, higher bond prices and big losses from this trade.

Similarly, those buying bitcoin on the promise of less regulation under Trump are chasing an asset that’s already more than doubled over the last 12 months. And those dumping energy stocks on the premise “drill baby drill” will crash prices should reflect that they’re basically counting on oil and gas managements to crash their own companies.

Bottom line: Keep your post election bets focused on the small things. They’ve got the best odds of paying off because there’s less risk of intervening factors. And with so many investors focused on macro, there’s abundant opportunity.

For example, it is certain the Trump administration will cut regulation. And much of that can happen without an act of Congress, and with a minimal risk of court challenges.

But instead of trying to formulate an energy strategy that depends on companies acting against their own interest, pick up some shares of a natural gas pipeline company that will capitalize on easier permitting for LNG (liquefied natural gas) export facilities.

Energy Transfer LP (NYSE: ET) operates pipelines and related infrastructure bringing natural gas to Gulf Coast ports. Its Lake Charles LNG facility will almost certainly win an export license extension when Trump takes office. And there’s a 7.5 percent yield growing quarterly as well.