Economists Have Run Away With Trump Rhetoric but the Market Will Wait and See

There are two things that are very clear as we head toward Trump’s inauguration:

Last time he was president, he was very slow to fill roles and many jobs and appointments were never filled. He seems to be trying to correct that mistake.
He believes (and I think he is correct) that many people who he left in place, that weren’t committed to his agenda, either “slow played” things or were outright obstructive. Again, he seems to be trying to correct that this time around.

While there is a lot of chatter, I think Scott Bessent as the pick for Treasury Secretary is a “typical” Trump move. A few candidates were tossed out. He seemed to listen to a variety of advisors and then he chose one that the market seemed most comfortable with. It was not the candidate that Elon Musk seemed to be advocating for, which is also noticeable.

From tariffs, to immigration, markets seem to be settling in to a “wait and see” attitude — where we are waiting to see if the “worst” comes to pass. As I’ve stated from day one, I think people were too “over their top” in their thinking on what Trump would actually do versus what he said on the campaign trail that many economists ran with, presumably to generate the most clicks.

NIMBY

I think that the production and processing of commodities (from rare earths and critical minerals to energy) will be a focal point of this administration. The pick as Treasury Secretary seems to back up the idea that “not In my backyard” will be challenged.

Again, I think for the past two decades, the U.S. had the luxury of adopting rules and regulations, where we were (or thought we were) the only superpower. With the rise of China (despite recent economic struggles), it seems valid to challenge some of those policies and see if they make sense in today’s world. Fighting China, economically, with one hand tied behind our back, seems like a bad strategy.

I think the companies in this space, from the extraction companies to the service companies, to the heavy equipment manufacturers should do well. XLE (which I own) continues to do well even with oil prices fairly weak, because of the growth opportunity.

I expect support for chips and other types of manufacturing, but the commodity space seems like the obvious first trade here.

Bottom Line

I think the 10-year treasury yield should be in the 4.1% to 4.3% range. It is headed in that direction.

The Fed will cut 25 BPS at one of the next two meetings. They will telegraph 3.75% to 4% as the terminal rate. But now is a good time to remind everyone that the Fed’s projections have not been particularly useful for years.

I would not touch single-stock leveraged ETFs. The rebalancing effect can be punishing in a choppy market. NVDA, for example, was up 9% from the middle of June until the end of October. NVDL, the leveraged ETF, was down 2%. If you want to play the most volatile stocks, with leverage, use margin, don’t go these ETFs. Otherwise you face a path dependent return, which will cause the ETF to underperform, but significant amounts, running the leverage via a margin account.

I think crypto and some crypto-associated stocks have been caught up on this. I think Stephen Guilfoyle wrote a good piece on it!

As a whole, I’m cautiously overweight in my fixed-income portfolio (and heavily skewed toward the long end of the rates market) and slightly underweight equities (skewed towards the laggards versus big tech). I’m trying to adjust it as news comes out, but am not extremely bullish or bearish anything at the moment (except possibly being very bearish crypto, but far too scared of the ongoing momentum and hype to touch that).

Good luck and have a great Thanksgiving!

At the time of publication, Tchir was long XLE.