2024-11-16 10:47:23 :
Looking at stock prices, Mr. Trump appears to be favorable to both Tesla’s electric cars and Detroit’s gas-guzzlers. For Wall Street and cryptocurrency companies; for the U.S. manufacturers he has vowed to protect, and the Mexican companies he allegedly needs to protect; and for oil stocks, even as his urging to “drill, baby, drill” could drive down crude prices. thus driving down profits. Even the stock prices of Chinese companies, the cannon fodder in Trump’s trade war, rose 2% by the end of November 7.
The world is complicated, and not everything revolves around the American vote (really). On November 8, China launched a US$1.4 trillion economic stimulus plan, shocking the world’s second largest economy. A day earlier, the government of Germany, the third largest economy, collapsed. Japan, the fourth-largest country, has looked unstable since its October 27 general election, with no party winning a majority. Even in the United States, investor enthusiasm may have more to do with the decisiveness of Trump’s victory, which removed concerns about post-election turmoil, than with the winner himself.
All of this makes predicting which businesses will thrive and which won’t over the next four years difficult — especially before figuring out who will shape policy under Trump. Schumpeter was a fool, then—or rather, a fool enough for us to make three guesses. First, U.S. companies will do better than non-U.S. companies. Second, in the U.S., smaller public companies should get a bigger boost than larger public companies. Third, Trump and his cronies may not behave like bandits.
The main reason corporate America as a whole should outperform its peers is that it has been doing so for years, with or without Trump. American companies are larger, faster growing and more profitable than their competitors in other countries. Obviously, in addition to this starting advantage, they will benefit from any cuts in corporation tax (which will automatically count towards their profits) and from deregulation (which will cut other costs).
Although legal and legislative hurdles could stymie Trump’s campaign pledge to impose tariffs of 10-20% on all foreign goods and 60% on Chinese goods, tariffs are still likely to increase. U.S. companies will pay higher import fees and face retaliation when selling overseas. Fortunately for them, their average impact on global business is smaller than that of multinationals in export-oriented economies such as China, Europe and Japan. If worst comes to worst, American companies can always rely on their vast domestic market. Tariffs won’t be “beautiful,” in Trump’s words, for shoppers, but in the short term, they don’t have to be ugly for profits.
The S&P 500 index of the largest public companies in the United States rose 3.5% in the week after the election, while similar indexes elsewhere rose less (China, Japan, Mexico) or fell (Europe, India, Hong Kong). Impressive — until you see that the Russell 2000 index, which tracks the smallest publicly traded companies in the United States, rose 5.8%. That’s a welcome change for smaller companies whose returns lag those of corporate superstars, said Steven DeSanctis of investment bank Jefferies. It lasted about ten years, which was the longest period in decades.
Now, Davis’ business may be looking up. They are not as capable of breaking through cumbersome bureaucracy as Goliath, so less bureaucracy is better for them. Under Trump’s self-proclaimed dealmaker, antitrust fighters are likely to launch more acquisitions that create value for shareholders of smaller target companies (though not necessarily for the shareholders of the buyer).
In the case of tit-for-tat tariffs, small businesses tend to be less involved in international trade than multinational corporations. Two of the biggest post-election winners among America’s 1,500 most valuable companies are domestically focused companies (and a nightmare for Democrats): GEO Group, which runs immigration detention centers, and private prison operator CoreCivic. Each stock’s value rose by two-thirds in three days, bringing their combined market capitalization to nearly $6 billion.
Donald & Company: Buy, Hold or Sell?
How much Trump and his cronies will ultimately gain is uncertain. Elon Musk’s wealth has increased by about $40 billion, up about 30% since Nov. 5, as Tesla shares soared, matching the roughly $100 million he spent to help elect Trump. Compared to $100 million, this is already a substantial return. An early test of the brotherhood looms. Trump’s campaign promised to repeal emissions rules. But these allow Tesla to sell credits to automakers that can’t produce enough electric vehicles to meet regulatory standards. Sales of such points accounted for 35% of the free cash flow Tesla generated between 2019 and 2023, according to Jefferies. What happens next will help understand Musk’s influence on policy and the performance of his business empire.
Alas, things are looking murkier for Truth Social, the publicly traded parent company of the Trump X clone. After wild swings, its shares fell 10% in the week after the election. On voting day, the company reported a net loss of $19 million on sales of $1 million. The immense power of the American president is no match for arithmetic.
© 2024, The Economist Newspapers Limited. all rights reserved. From The Economist, published with permission. Original content can be found at www.economist.com
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