How Are Those “Trump Trades” Doing?

Editors’ note: MarketMinder is nonpartisan, favoring no party nor any politician. We assess political developments for their potential market effects only.

Are the so-called “Trump trades” fading? The prospect of a “pro-business” Trump administration seemingly buoyed certain assets in the lead up to and immediate aftermath of his win last November. But a month-plus after Inauguration Day, some of those areas are already cooling. In our view, this is a reminder: Acting on what politicians say or what they might do frequently amounts to buying into hype—often a mistake.   

A Trump trade assumes a given asset, sector or industry stands to benefit from administration policy or the general zeitgeist, which echoes “Biden bump” talk in 2020 and 2021 and Trump trade talk in his first administration. Under former President Joe Biden, experts speculated possible support for “renewable energy” policies would buoy the alternative energy industry (e.g., solar and wind). Back in 2016 and 2017, some thought aerospace and defense stocks as well as the Energy sector (which is almost entirely fossil fuels and largely oil stocks) would lead thanks to a surge in federal defense spending and increased oil drilling, respectively, under the first Trump administration.

Entering the 2024 presidential vote, analysts highlighted numerous assets that would supposedly benefit during Trump’s second round in office. Expectations for higher military spending would benefit defense companies—not just in the US, but even in South Korea.^[i] An anticipated deregulation push was poised to boost small cap stocks, big banks, oil drillers—and even crypto. Trump’s win did appear to stoke enthusiasm toward these assets. Bitcoin surged past the $100,000 milestone in early December, reflecting some hope the second Trump administration would be friendly toward the crypto industry.^[ii] At one point, bitcoin was up 53% from the election!^[iii] Other Trump trades looked like big winners in the election’s aftermath, too. (Exhibit 1)

Exhibit 1: Most “Trump Trades” Looked Like Winners Around Election Day

Source: FactSet, as of 2/25/2025. MSCI Index returns for the World, US Small Cap, US Oil, Gas & Consumable Fuels, US Aerospace & Defense and US Banks. US returns include gross dividends, World returns include net dividends, 7/31/2024 – 11/30/2024. Indexed to 1 on 7/31/2024.

But after an initial surge, the enthusiasm has cooled. Bitcoin’s price has fallen from $106,150 at the end of January to $88,923 as of February 25, a -16.2% dive.^[iv] Though bank stocks continue to lead global markets since the election, they are merely paralleling a global trend. European banks are even further ahead, especially since the inauguration—US banks are down over that timeframe.^[v] Other Trump trades started pulling back even sooner. (Exhibit 2)

Exhibit 2: “Trump Trades” Have Mostly Cooled

Source: FactSet, as of 2/25/2025. MSCI Index returns for the World, US Small Cap, US Oil, Gas & Consumable Fuels, US Aerospace & Defense and US Banks. US returns include gross dividends, World returns include net dividends, 7/31/2024 – 2/21/2024. Indexed to 1 on 7/31/2024.

Now, focusing on short timeframes is myopic—often not the most productive exercise, in our view. But Trump trades reflected a typical misperception: that whatever a politician says about a given sector or industry on the campaign trail dictates future performance. Not true, in our view, since pols tend to moderate once in office and the ideas that stirred excitement (or fear) may not manifest as initially proposed. Take crypto. Many proponents thought the Trump administration’s support would be immediate, especially after promises for a national bitcoin reserve. That initiative has since stalled after a White House official said a working group needed to study a reserve’s feasibility.^[vi]

Moreover, what might be considered positive for an industry isn’t always beneficial for that industry’s stock prices. Consider oil drilling. Trump may urge producers to “drill, baby, drill,” but opening up more federal lands for oil companies isn’t necessarily a boon. For one, producers have already been able to tap federal lands—they just have chosen not to for market-driven reasons. The Biden administration’s restrictions were always misunderstood and largely symbolic, in our view. Moreover, in a vacuum, higher supply means lower prices—and price matters more than production volumes to Energy companies’ earnings (and therefore Energy stocks). As Exhibit 3 illustrates, Energy stocks’ leadership tends to track global oil prices—which the president has very limited influence over.

Exhibit 3: Energy Tracks Oil Prices

Source: FactSet, as of 2/25/2025. Crude Oil Brent Global Spot (dollars per barrel) and MSCI World Index returns and MSCI World Energy sector returns with net dividends, 12/31/2020 – 2/24/2025.

Politicians also aren’t known for their intellectual consistency. They make many promises—some that may help and others that may hurt. Which holds sway? Note, too, markets are efficient discounters of widely known information and pre-price chatter as it occurs. Trump trade expectations percolated throughout last year and ramped up after Biden announced his exit from the race in July.^[vii]

While attention-grabbing, the hype for new politicians’ possible policies generally isn’t long-lasting. Back in 2020, “clean energy” stocks soared leading up to Biden’s election and peaked before his Inauguration Day. Since then, they have lurched downward as the industry has struggled with high costs, regulatory hurdles and lack of profitability. (Exhibit 4)

Exhibit 4: Clean Energy Hype Didn’t Hold Up

Source: FactSet, as of 2/24/2025. S&P Global Clean Energy Transition Total Return Index, 7/31/2020 – 12/31/2024.

This echoes a broader trend we have noticed surrounding the new administration: deteriorating sentiment. Trump’s victory did spur excitement, but optimism wasn’t universal. Skepticism arose, especially over possible tariffs. As the post-election glow faded and reality settled in, major “business friendly” changes looked less likely. Congress’s deficit focus countered expectations for broad tax cuts, and tariff and budget cut fears have weighed on defense stocks. Infighting among Trump’s advisers dampened enthusiasm for sweeping deregulation. DOGE escapades have amplified this, with the perceived focus on the size and efficiency of the Federal workforce and departmental budget waste instead of scrapping red tape. While the efforts here could yet lead to deregulation downstream if the endgame is ending mission creep, that remains to be seen. Whether DOGE’s actual approach helps or hurts efficiency is also up for debate.

Just as markets pre-priced pre-election enthusiasm, they also quickly digested the probability major political shifts weren’t around the corner. In our view, that reset sentiment to a degree. Surveys, including the University of Michigan’s widely watched consumer sentiment measure, indicate moods have cooled since November as protectionist trade policy and Federal workforce cuts now weigh heavily on expectations. For investors, that reset can add some bricks to the proverbial wall of worry. Today’s conditions aren’t perfect, but from an investing perspective, dampened political enthusiasm lowers the bar reality must exceed to beat expectations—and that is reason to be bullish, in our view.