Immediately following President Trump’s surprise election victory, a cross-section of stocks that were seen as beneficiaries of many elements of his economic policies had strong rallies. Features of the agenda such as the rollback of regulations, tax rate cuts, capex write offs, infrastructure tariffs, foreign cash repatriations, etc., would likely be a big positive for these sectors: Financials, industrials, materials, energy, and consumer discretionary goods, industry groups that had all outperformed the S&P 500 between election day and the inauguration.
But before long, impatience and doubt about the plan ever being enacted began to set in. Many investors have become skeptical that the administration’s agenda will ever materialize. Just recently, for example, a major construction company was downgraded by a prominent analyst with the observation that “she has no idea whether Trump’s infrastructure plans will ever be enacted”.
To be sure, media coverage of the “distractions” that have plagued the administration and the inability, thus far, of congress to move forward on healthcare reform and tax cuts have been real issues. But given Republican control of both the White House and Congress, the odds of the pro-growth agenda never becoming reality are pretty low. Indeed, if most elements of the Trump stimulus plan ultimately do materialize, and these affected securities perform substantially better over the next few years, then arguably the current skepticism toward the so-called Trump Trade names could turn out to have been a whopping episode of what the behavioral finance folks call Status Quo Bias . . .