Who Will Win in Business Under Trump?
WHY YOU SHOULD CARE
Because if you work at these companies or own these stocks, you’re in luck.
By James Watkins
For the first time in history, a man with no executive experience in public office or the military occupies the Oval Office. But he has been at the helm of an international business conglomerate for over four decades, becoming a billionaire in the process.
Which helps explain why, since the election, the stock market has surged to record highs: Investors expect the new administration to be good for business profits, says Lawrence White, economics professor at NYU Stern Business School. Despite appearances, President Trump’s election — and the anticipated tax cuts and deregulation accompanying it — is not the only business story in town. Oil prices have climbed from historic lows as the producing countries’ cartel has restricted output; the Federal Reserve has started the slow normalization of interest-rate policy; and the U.K.’s prime minister has signaled that Brexit will be about as “hard” as can be.
Nevertheless, one of the most substantial political shifts in recent decades will create both winners and losers. Here’s OZY’s rundown of which businesses to watch over the next four years.
1. Defense and security companies
Given Trump’s campaign rhetoric on boosting defense spending, many large contractors expect fatter federal paychecks. That said, the power struggle between a fiscally conservative Congress and the White House might complicate matters — Trump himself has tweeted about canceling big contracts deemed a poor value for money, wiping billions off defense stocks like Boeing and Lockheed Martin overnight.
The broader security sector, comprising many smaller commercial and residential security firms, could still be set to gain from economic growth, the heightened public narrative surrounding risk and federal spending on infrastructure, says Ron Hawkins from the Security Industry Association. One larger company to watch is the GEO Group, whose private prisons and contracted work with Immigration and Customs Enforcement (ICE) are likely to benefit from a crackdown on illegal immigration. GEO stocks jumped 21 percent after Trump’s election, and they have climbed a further 35 percent since.
2. Apple and other large domestic exporters
Big exporters could be set for a huge windfall under a package of corporate tax reforms widely expected in this Congress. We don’t yet know where the compromise will fall between Trump and the Congressional GOP, but both sides agree on the basics: large cuts to business taxes, plus reduced rates for exporters relative to importers. A current draft bill from House Republicans “would effectively repeal the corporate income tax,” writes economist William G. Gale from the Brookings Institution, replacing it with a European-style value-added tax that would exempt export revenue. This could “create negative net tax liability for some very big, very profitable exporters,” Gale continues.
We’re looking at you, Apple, which has hinted that it could repatriate billions of dollars of profits that are currently stacked in cash piles abroad. Although Trump isn’t the company’s biggest fan, regularly criticizing them for producing abroad, some have rumored that the company may move some iPhone manufacturing to the U.S. — who knows what effect a positive Trump tweet could have on stock prices?
3. Exxon Mobil and other oil and gas producers
Oil and gas companies seem set to gain “bigly” from a reduction in regulation that both President Trump and Congressional Republicans have accused of strangling growth in the sector. “We’re going to see more development of natural energy resources,” says White. He is less bullish on the prospects for the coal industry that Trump has promised to revive, citing market pressures that already make coal a less attractive alternative to fracked oil and gas, regardless of regulation. Watch out for Exxon, whose vast global presence could expand further if Trump’s plans to dismantle ISIS by taking over its supply of black gold pan out. Plus, as the single largest U.S. taxpayer with the vast majority of their revenue earned abroad, it could gain hugely from the aforementioned corporate tax reforms.
4. The construction sector
Builders, equipment manufacturers and raw materials providers will be rubbing their hands if President Trump’s campaign promise of up to $1 trillion of infrastructure spending comes to pass. A survey of over 1,200 general contractors shows a greater level of confidence than at any time in the past eight years, notes Kenneth Simonson, chief economist from the Associated General Contractors of America.
That said, rising interest rates and the potential for trade restrictions to increase cost pressures on input materials could dampen growth, notes Simonson. Add to that potential immigration restrictions, which could prove “the most threatening” influence on the sector, given that contractors have been reporting consistent labor shortages for several years. Whoever wins the border wall contract, though, is set for a windfall.
5. Banks, big or small (but not both)
It’s the perfect combination for banking: interest rate rises combined with the near inevitability of financial deregulation. The Federal Reserve is expected to continue to increase interest rates from record lows, while Dodd-Frank, the landmark financial regulation legislation passed in 2010, “is gonna be amended if not repealed, that’s a no-brainer,” says Bob Solomon, a law professor at the University of California, Irvine, and an expert on banking law. Small community banks are also hoping to gain from regulatory reform, but it depends on what a Dodd-Frank replacement looks like — blanket deregulation would mean they are set to be increasingly crowded out by their too-big-to-fail competitors.
6. The Trump Organization
One company that financial journalists (if not investors) will be watching like hawks for the next four years is the Trump Organization. The lifelong property mogul has not given detailed plans about policy proposals for the sector, but financial deregulation and infrastructure spending will no doubt help the Organization to prosper under the stewardship of his sons. And while the “Trump” brand may be pretty polarizing, that doesn’t matter for the global real estate empire, which relies on investor confidence in its creditworthiness. Bearing the name of the most powerful man in the world will no doubt help on that front.