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Trump’s First 100 Days Has Arrived. Now What?

After months of speculation, we finally arrive at the beginning of Trump's first 100 days in August.

Make sure you read all of this month’s special feature coverage leading up to President Trump’s First 100 Days here.

Friday brought the culmination of the anticipation for what the Trump administration will do. As of Monday morning, anticipation gave way to action as the Trump era commenced with the official exit from the Trans-Pacific Partnership (TPP), signaling the beginning of a period that promises to be a busy one in the reshaping of government policy. dedicated the month of January to just what Trump may be planning for the nation in his first 100 days. So, as we begin to see speculation translated into reality, we’re going to review some of the main themes that investors may expect from President Trump and Congress over the next quarter.

Infrastructure Spending, Tax Cuts, and Reduced Regulation Could Juice the Economy …

Trump’s planning to cut taxes significantly, reducing the number of brackets, cutting the top rate to 33%, and making deep cuts to the business tax. How it all plays out is anyone’s guess, and you can bet Republicans in Congress are going to have their say, but the odds are looking pretty good that there’s going to be a significant reduction in tax rates, one way or another.

Plans to potentially declare a tax holiday that would allow companies to repatriate offshore cash holdings at a reduced tax rate could boost the prospects of some of America’s biggest corporations, with Apple (AAPL), General Electric (GE), Microsoft (MSFT), Pfizer (PFE), and IBM (IBM) leading the way and holding almost $550 billion in foreign countries between them and the top 50 American corporations holding nearly $1.4 trillion. If given a chance to bring that money home, it could mean major acquisitions or big stock buybacks, both of which stand to juice the prospects of major stocks.

He’s also planning on widespread reduction of federal regulations and a ton of new infrastructure spending, all of which promises to be of significant benefit to business growth. Best case scenario, Trump’s aggressive strategies for making it easier to do business in America generate something approaching (but still falling well short of) the 4.00% GDP growth Trump crowed about on the campaign trail.

…but Obamacare and Trade Chaos Could Hamper Growth

Of course, the flip side of that is much drearier. There are plenty of reasons to believe that big tax cuts that mostly going to the wealthy won’t produce the desired effect in terms of economic growth – just as they didn’t when Bush took that path in 2000. There’s also very real concern about what the promised repeal of the Affordable Care Act will mean, especially if it’s done without a clear plan for its replacement ready. The healthcare sector accounts for nearly 18% of the American economy, and throwing it into considerable chaos could be something that ripples across the economy and restricts growth elsewhere.

Health insurers like Cigna (CI), UnitedHealth Group (UNH), Humana (HUM), and Anthem (ANTM) have already largely divested from the exchanges and derive the largest section of their revenue from the sort of large-group plans offered by employers, but they still have considerable exposure to disorder in the insurance market. What’s more, the more popular parts of the legislation in place are the ones that tend to cost insurers the most, and a partial repeal would likely hurt margins while removing incentives that were designed to push younger, healthier people to purchase plans. Hospital stocks, meanwhile, are potentially the biggest losers. A large population of uninsured people forces hospitals to absorb the cost of treating them without compensation, putting companies like HCA Holdings (HCA), Community Health Systems (CYH), and Tenet Healthcare Corp. (THC) in an uncertain position that would get much worse with a full repeal.

There’s also the pesky problem of Trump’s promised trade strategy of heavy import tariffs to attack globalization. Most economists are in agreement that this approach won’t create the desired job growth, and the American economy is incredibly intertwined with the global economy, with snaking supply chains winding into a complicated Gordian knot. Trump may imagine himself Alexander the Great, cutting them all aside with the stroke of his sword, but the reality could be rising consumer prices that could strangle business growth.

Everyone from retailers to auto manufacturers could see a dramatic increase in their costs, forcing a Sophie’s choice between trimming margins and passing the cost on to consumers. Companies that make and sell products entirely within US border could benefit by seeing competitors prices jump while theirs remain stable, including a number of small-cap domestic companies in the consumer goods sector, higher prices across the board will mean there’s less money to go around, potentially hurting consumer-facing companies of all stripes.

Photo by Josh Lopez

A New Day for the Energy Sector

Among the predictions that seem to have the most certainty surrounding them is that the Trump years are going to mean big things for the Energy sector, with a massive reduction of regulations and new lands being opened up to drilling. In particular, midstream pipeline companies and oil & gas exploration companies appear to be poised to benefit the most.

However, anyone rushing to buy up stock in those companies based on Trump’s election alone should likely slow things down. Ultimately, the factor on which their fortunes’ are most dependent is the price of oil, something that could be negatively affected by a boost in production from North American sources. Likewise, Trump’s promises of a rejuvenated coal industry may not have much to them. While the industry would undoubtedly benefit from the removal of EPA regulations on power plants, the primary culprit for the decline of the American coal industry has been cheap natural gas produced by fracking, something the Trump administration is only planning to expand.

Infrastructure Spending Should Mean Big Things for the Construction Industry

Infrastructure spending has been en vogue for politicians for some time, with President Obama pushing hard for it, Senator Bernie Sanders proclaiming the need for a modern New Deal, and Hillary Clinton’s support making this one of the only issues the two candidates were in agreement over. However, now that the Republican Congress has a Republican President in place, there’s a real chance that their opposition might evaporate. As such, a number of industries that are specifically related to construction and materials are likely going to see a real boost in demand.

Among the companies that stand to benefit the most are domestic steel companies like US Steel (X) (particularly if proposed tariffs on Chinese steel materialize), construction equipment firms like the Manitowoc Company (MTW), and general building materials companies like Martin Marietta Materials (MLM).

Photo by Remy Steinegger

Financials Can Expect a Slackened Regulatory Atmosphere

Plenty of people have already observed that Trump’s rise as the populist champion seems entirely at odds with his plans to roll back significant sections of Dodd Frank, but that doesn’t seem to have stopped him. Both Trump and Steven Mnuchin have left little room for doubt in this regard, and Mnuchin’s history as a partner at Goldman Sachs (GS) should make clear where his loyalties lie. The country’s biggest banks will, subsequently, likely be able to return to prop trading. However, expectations that this would mean a major shift for the financial sector are likely overblown, as Wedbush analyst Gil Luria told in an interview.

“Assuming that it gets rolled back…, the Volcker Rule has more to do with a handful of institutions that have done well and will continue to do well, and the Volcker Rule was not much of a setback for them to begin with and won’t be that much of a benefit if it’s rolled back,” said Luria. “But for all other banks and financial institutions, it’s unlikely to have much of an impact altogether.”

Interest rates are likely to have a bigger effect on bank earnings than deregulation, so keeping an eye on the Fed remains important. Rising rates should boost lending and benefit those companies that derive the majority of their revenues from traditional commercial banking.

“The benefit from rising interest rates, independent from regulation, would mean that regional banks such as Regions Financial (RF) would be in a very good position,” said Luria.

The Clearest Certainty Seems to be Change

One can never know for sure what the future holds, least of all in the area of macroeconomics. However, there does seem to be some certainty in what the coming three months will hold, and how that should move things in the coming years. President Trump enters office with big plans to play the role of a pro-business President, and if his plans work out, it could mean very real economic growth. That growth might come with consequences to society, but it should mean stocks in those sectors that Trump smiles upon will see some immediate gains.

However, investors would be wise to approach this news with appropriate caution. Trump enters an economy in its 90th straight month of expansion, with stock markets hitting record highs… both of which seem to make continued expansion less likely. What’s more, he plans to sew some pretty serious chaos by upending the healthcare sector and disrupting the global supply chain that American consumers rely on. On top of all that, the potential returns created by Trump’s election may already be priced in, with a number of sectors already seeing significant gains in the last two months.

Investors should likely understand both the potential for Trump’s policies to generate significant growth and the potential for them to disrupt large sections of the economy in ways that would significantly hurt the stock market and the economy alike. The coming days stand to contain a lot of clues regarding where the government, and the markets, are headed, so we’ll be keeping a close watch on the news coming out of the White House.

Keep coming back for the rest of this month as we continue to explore what, exactly, is in store for markets under the new Trump administration. Be sure to read:

The astronomer Carl Sagan said, “It was easy to predict mass car ownership but hard to predict Walmart.”