As the new year begins its wrath, there are some lessons to be learned from recent history in terms of investing… especially under Trump.
Although the news of Donald Trump being our president-elect wasn’t what most people expected, the truth is, it happened.
For those of you who have actually listened to Trump’s proposals for the economy, you may have heard his plans can hurt the US. Yet, the topic of the economy is a large part as to why Trump won.
It’s no secret that inflation is the main concern in the economy for US households. With inflation hitting a 20-year high of above 9% under the Biden administration, many Americans still feel like inflation is high. As of September 2024, inflation was at 2.4%.
However, under the new Trump administration, there is a chance inflation can soar again. He proposes a 60% tariff on Chinese goods and 20% on all other US imports. Trump argues it is a measure to punish China, but it can very much punish US consumers.
In the event Trump’s tariffs go into effect, it can give investors a shot at redemption. It’s an opportunity to learn from recent history with inflation.
Here are some factors to consider when deciding what to invest on through 2025:
Federal Reserve Increasing Interest Rates
Going back to the idea of recent history, we can expect the Fed to increase interest rates if inflation gets out of control.
That’s what happened from March 2022 to May 2023. Interest rates went from 0.25% to 5.5% in a heartbeat.
If Trump’s tariff plans go into effect, it can make more of the goods we purchase expensive.
Think about it, a lot of the things we buy are imported. From sneakers to groceries to cars, a lot is imported from other countries.
If companies need to pay 20-60% tariffs on imports, they’re going to pass those costs onto us. Imagine dealing with these costs for four years.
So, what if the Fed increases rates again next year?
That would mean higher rates on savings accounts, CDs, and other money market funds. As a result, people should take advantage of higher rates in the market to grow their wealth.
TIPS (Treasury Inflation-Protected Services) can also be a good investment. Focus on buying these over the next few months, while interest rates lower. That way, you pay less principal and when the bond matures, it can be higher when you sell it.
Bank and insurance company stocks can benefit from higher rates as well. This is because they can charge more money to lend to companies.
The main area of focus are the rates banks can offer if the Fed increases interest rates. Look for high yield savings accounts and/or CDs to take advantage.
Energy Prices
Typically, when inflation rises, so do energy prices. Specifically, oil and gas.
How does this impact our investment strategy? It allows investors to be bullish on oil and gas company stocks. Oil and gas companies have performed better than the overall economy when inflation has been high.
Furthermore, it is important to note that Trump isn’t supportive of renewable energy. And to that extent, he doesn’t believe in climate change. His main priority is the oil and gas the US can drill and produce.
NextEra Energy, the world’s largest generator of renewable energy, lost more than 2% on its stock after Trump was announced the winner of the election. It’s a sign that investors know the growth of clean energy will slow down or even stop under Trump.
I don’t think much more needs to be said to gravitate towards investing in oil and gas stocks. Investing in these commodities can also be a great idea.
Gold
Oftentimes called a hedge against inflation, gold is a great investment for the near future.
Gold is seen to have better value than cash and bonds when inflation is high. With that being said, investors look to invest in gold to preserve their purchasing power.
Also, if the US dollar weakens dramatically, the value of gold soars. This makes gold a valuable asset to have in your portfolio in times of inflation.
On simple supply and demand terms, gold has a surge in demand with inflation because of the safe haven it gives investors. More demand means prices grow.
As inflation eases the rest of 2024, it may be a good idea to wait to see how gold prices react and try to buy at a low. It would also be good to invest before Trump takes office, in case his tariffs go into play soon.
Elon Musk and Tesla
An interesting take came up on CNBC’s Squawk on the Street, in which Jim Cramer said today’s market is not the same as what we were used to.
What Cramer meant was that there is a “pool of investors” on Wall Street that invest based on popularity. The perfect example… Elon Musk and Tesla.
Looking back at Tesla’s performance this week (11/4-11/8), the stock has surged more than 31%. All because Musk made a bet on Trump that paid off.
Of course, having the CEO of a company be close to the US President is a major advantage to have for any stock, but there seems to be no regard for what Tesla has been going through.
A robotaxi event that seemed lack lusting, BYD sales surpassing Tesla for the first time ever, the controversial pay package Musk demanded, all news the company has faced this year. It seems to matter nothing for investors.
As Cramer mentioned, investors just want to say they own a piece of Musk. They want to own a piece of other billionaires. It doesn’t matter anymore if a company is doing poorly as long as there’s popularity behind the company.
Having said that, it will be interesting to see how Trump and Musk work together over the next four years. It can drive the stock higher or sink it for a while.
My idea is to wait the next few months to see what else Tesla has going on, in which maybe (just maybe) the stock will go back down. If so, that’ll be the sign to capitalize and invest in Tesla.
Unless something crazy happens, I only see Tesla going up the next four years… inflation or not.
National Treasures
Boeing and Intel have been two of America’s greatest treasures. However, in recent years, both have struggled in their respective markets.
In particular, Boeing has faced a lot of scrutiny for their defective planes and the long labor strike that just ended. The stock has hit one-year lows several times and has given the impression that they need help, lots of it.
On the other hand, Intel was recently kicked out of the Dow Jones Industrial Average. It was replaced by the superstar in Nvidia. This news can be seen as another American treasure falling to its knees.
Trump has had good relationships with Boeing. He helped the company avoid criminal charges for plane crashes involving 737 MAX planes. There’s a good chance he will continue his good relationship with the company.
As for Intel, Trump has criticized the company in the past. However, it is worth noting that he tends to protect our national treasures.
Take US Steel, for example. Trump has mentioned that he wouldn’t allow a foreign company to acquire US Steel, as it belongs to the US. Although a good amount of workers at US Steel are all for an acquisition, it can damage the US reputation.
Say what you want about Trump, but he does give me the impression of protecting our national treasures. Boeing and Intel are both part of that, and I see Trump defending them if worse comes to worse.
With that, Boeing and Intel may be stocks to consider in the future.
All in all, Trump’s victory has the implications of impacting inflation. We can learn from the past when inflation was high, and from Trump’s first administration. Thus, we can be better about our investments as well.
