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3 Sectors That Will Win Under Trump in 2017

3 Sectors That Will Win Under Trump in 2017

 (Getty/Chip Somdevilla)

By    |   Thursday, 09 February 2017 06:23 PM

Since the financial crisis, monetary stimulus has been the main driver of economic growth. That led to nearly all assets moving higher in unison, but that is now changing.

With the monetary engine shifting down a few gears, growth will have to once again come from sector-specific channels like it did during the dot-com or housing booms.

This, coupled with Trump’s pro-growth policies, means 2017 will have clear winners and losers. This is good news for investors who can spot the new opportunities ahead.

Given these changes, which sectors look set to be 2017’s best of show?

Ride the Waves

Since the election, financials have gained about 18% and industrials are up 11.5%. Contrast this to the 1% rise in consumer staples and utilities. A major cause for this market divide is Trump’s policy announcements.

The duo of stimulus and structural reforms have raised the odds of higher growth and inflation this year. The sectors that will benefit most from this are the cyclicals: energy, materials, industrials, and financials.

Markets have also diverged because of Trump’s stance on trade. Since the election, the S&P Small-Cap 600 is up 16%, with the S&P 500 up 7%. If Trump delivers on his trade threats, firms that earn a large share of their revenues from US sales will outperform multinationals.

Another catalyst for the divergence was the Fed’s December rate hike. Sectors that have historically performed better when rates are rising—like industrials, materials, and energy—have moved up in response. Higher rates will also directly help financials by boosting industry revenues.

If the Fed can execute its plans for three rate hikes in 2017 alongside Trump’s agenda, we will see clear winners. Overall, the sectors most likely to profit from the changing conditions are energy, financials, industrials, and materials.

While the energy space should do well, it may be prudent to abstain for now because of China’s economic struggles. Chinese demand has a huge impact on the price of petroleum and coal, so its faltering economy may weigh on prices.

Financials have shot up in the election wake. The markets have probably already priced-in some of the rosy outlook, so waiting for a pullback might be wise.

This leaves industrials and materials. These sectors tick all the boxes for 2017, but tread carefully. This survey of the market landscape ahead is only a “first pass” screening tool. Any company targeted for investment must have sound fundamentals.

While there will be clear winners in equities, there is another sector rapidly gaining traction that meets all the criteria for success in 2017.

Meanwhile, Peer-to-Peer lending is a new asset class helping investors beat the market. It’s a method of debt financing that lets individuals borrow and lend money outside the formal banking system.

What started as peer-to-peer has grown into a marketplace. The likes of JP Morgan and Citibank now account for over 65% of new capital. Goldman Sachs recently said it will launch its own lending platform named Marcus. It will be the first major bank to do so.

P2P lending is a great source of fixed income. Its investors are currently averaging 7% returns on 36-month loans and 9% on 60-month loans.

Here’s why now is a good time to consider P2P lending. (Learn more in our free report, Welcome to the Bank of You. Download here). As loan rates charged by platforms have risen in line with the Fed’s hikes, default rates have actually dropped. This is due to tighter underwriting standards. Today, only 10% of loan requests are approved.

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StreetTalk
Since the financial crisis, monetary stimulus has been the main driver of economic growth. That led to nearly all assets moving higher in unison, but that is now changing.
sectors, trump, investors, stocks
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2017-23-09
Thursday, 09 February 2017 06:23 PM
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