What Trump's Election Means for Industrial Stocks

Increased inflation, expanding debt costs, and the erection of trade barriers could offset enhanced competitiveness through higher costs and faltering global demand

Keith Schoonmaker 16 November, 2016 | 2:02PM
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It’s challenging to predict what will happen following the election of Donald Trump as President of the United States, because he may lack the full support of the Republican Congress and may refine his policies as his team gathers information from business leaders, but we can say with confidence that the near-term uncertainty surrounding the performance of many industrial stocks just increased.

Trump’s anti-free-trade rhetoric and policy uncertainty has led to an initially weaker U.S. dollar, which combined with talk of infrastructure spending and tax cuts seems to be pushing inflation expectations upward. This could result in U.S.-based manufacturers being more globally competitive against Japanese and European peers. However, increased inflation, expanding debt costs, and the erection of trade barriers could offset enhanced competitiveness through higher costs and faltering global demand.

What Trump Means for Stocks

Across Morningstar equity analysts’ industrial coverage, U.S. and European defence contractors stand out as winners, while our outlook for other sectors is more mixed. We’re concerned about the impact of slowing trade and air travel hitting transports, aerospace manufacturers, and airlines. While we think the Trans-Pacific Partnership would be positive for Japanese automakers, we see the future of U.S. trade policies with Mexico as the key development for U.S. auto names.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Airbus SE114.90 EUR1.36Rating
BAE Systems PLC599.40 GBX0.40Rating
Boeing Co216.93 USD-2.32
General Electric Co104.41 USD1.63Rating
Leonardo SpA Az nom Post raggruppamento6.73 EUR0.87Rating

About Author

Keith Schoonmaker  Keith Schoonmaker is a senior stock analyst at Morningstar.