How fortunes will be created and pensions lost over the next 4 years

What do we think of the stock market, my fellow contrarian?

More importantly, should we have an opinion on the market as a whole at all? I don’t think so. Trump 2.0 will create a “market bar” of big winners and sad losers. Let’s focus on the dividend payers who will be propelled higher and move on on latecomers.

There are some great dividends ready to go higher. Today, they remain in the bargain bin because of investors’ reservations about the Federal Reserve. When Chairman Jay Powell took the stage in December, he delivered a sober speech to investors: Don’t expect as many rate cuts as you hoped.

The lecture was not well received and seriously frightened the flock. Fear is widespread, according to CNN’s Fear and Greed Index (FGI):

At Contrarian Outlook, we tend to tone down the FGI. When emotions scare us, we buy bargains with weak hands.

They always have a reason to sell low. Granted, the narrative usually fades into the rearview mirror over time. But vanilla financial sites must publish a reason that stocks are decreasing Today.

These days, it’s the hawkish Fed. But is it Really bad news? The 10-year Treasury yield has (paradoxically) increased with every Fed rate cut. It is not supposed to happen.

It’s the bond market that’s screaming at Jay that these cuts aren’t necessary. The economy is doing well. It has absorbed the rate increases, and we have not seen any hard or safe landings. In fact, we saw no economic landing at all!

Last Friday’s strong jobs report showed that. The unemployment rate fell again at 4.1%.

Remember the August downturn, when pundits and Fed officials were sure we were heading into a recession? This triggered the “Taylor Rule,” a formula that is supposed to predict a recession. Last summer, Fed members seemed to take the Taylor rule as gospel.

Taylor’s rule, however, is newer than the gospel. It has been around since… 1992. This also surprised me, because it is talked about as if it had been handed down in biblical times. I’m in favor of most 90s trend comebacks, but Taylor’s rule should have stayed.

So the economy is booming, and the Fed is finally admitting it. Short-term rates will stay “higher for longer.” If this allows us to “contain” the 10-year yield below 5%, then I am completely in favor. Higher short-term rates should prevent the economy from overheating. (The path of constant rate cuts combined with “no landing” was not going to achieve this.)

Which brings us to President-elect Trump, who will take office in five days. The most Dow Jones-friendly president in recent history takes office with a healthy dose of market fear. It is tempting buy the S&P 500 or the Dow Jones Industrial Average and be done with it, but we can do better.

I calculated how some stocks performed during Trump. 1.0 to find out how the investment story might “rhyme” over the next four years. There are a few surprises that are not appreciated by the dominant narrative.

Trump 1.0: healthcare stocks largely Rallied

First, conventional wisdom recommends dumping healthcare stocks. Robert F. Kennedy Jr. will lead the Department of Health and Human Services. Sell ​​them all, right?

Fake! The top five stocks in this discounted market 14% paid the dividend fund generated returns of 126%, 141%, 179%, 227% and over 1,000% under the first Trump administration, benefiting from looser regulations and a strong economy:

Yet the BlackRock Health Sciences Term Trust (BMEZ) the fund is at an 11% discount to its net asset value (NAV) due to concerns that RFK Jr. will wipe out the entire sector.

Trump 1.0: Optimistic for premier health care

Let’s take a deep breath. RFK does not determine what the Federal Drug Administration (FDA), which traditionally operates alone, regardless of politics, does. In addition, we have sure values ​​in the sector like UnitedHealth Group (UNH) And Abbott Laboratories (ABT) who are likely to ride merrily as they did during Trump’s first term. UNH and ABT cruised at 135% and 199%. Their business was good then, and it remains so today!

Trump 1.0: The energy bear market was underway

And energy? Crude oil rebounded last Friday following the latest round of US sanctions against Russia. Is the reduction in supply coupled with a strong economy bullish for energy, or will Trump’s mantra of “drill baby, drill” end up limiting prices? I’ve heard attentive readers worry that Trump “drilled so much in his first term that he was full of oil.”

It’s true that energy prices trended downward during the four Trump years, but the oil bear market began in 2014…two years before 1.0 – sparked by the US shale oil supply boom that began years before. So by the time of Trump’s inauguration in 2017, these trends were already in motion. So I wouldn’t draw many conclusions from these two ugly charts, which feature two of our favorite dividend producers in the energy sector, EOG Resources (EOG) And EQT Corp (EQT):

We must treat government contractors on a case-by-case basis. The new Department of Government Effectiveness (DOGE), led by Elon Musk and Vivek Ramaswamy, is seeking to eliminate $500 billion in spending. This is a potential headwind for federally powered gravy trains.

We may also see “peace dividends.” Trump could strike a deal with Russia to end the war in Ukraine or with China to ease tensions in the Pacific. Given these headwinds, entrepreneurs are now in general in “stay away” territory.

An exception I make concerns General Dynamics (GD)which is a backdoor play on AI automation at the federal government level. GD stagnated during Trump 1.0, but we have higher expectations this time around given the AI ​​angle.

AI plays a central role in General Dynamic’s IT strategy. It deployed a Luna AI system that uses machine learning to learn from large amounts of data. Luna is specifically designed for government and defense applications. The “Luna lift” is evident in GD’s new orders and total order backlog.

Brett Owens is chief investment strategist for Contrarian perspectives. For more great income ideas, get your free copy of his latest special report: Your early retirement portfolio: huge dividends, every month, forever.

Disclosure: none