Let the professionals have fun with the “Trump (or Harris) deal”

“Sell “In May and Go away” is an old Wall Street proverb. I first heard it from my father, a New York businessman, one hot afternoon in the last century.

“The brokers and the real money guys are in the Hamptons now,” he shouted over the din of city traffic as he drove us home in his unair-conditioned Ford sedan. “They’re just shutting down for the summer and relaxing. The rest of us who are still working might as well forget about the market because nothing is happening.” In an election year, he said, that was doubly true. No one but the professionals paid attention to politics until Labor Day.

That was the theory. Ignoring both politics and markets is clearly not feasible this summer. If you blinked, you missed some fascinating political news. And partly because of politics, specific sectors and fixed income instruments were volatile. But when it comes to investing, quick trades are risky, and I think most people would be better off at the beach.

The “Trump trade” is the name given to financial strategies tied to the former president’s changing fortunes. Wall Street analysts have linked such market bets to stock price movements in companies involved in weapons, prisons and fossil fuel energy. The Trump trade has also been attributed to small changes in bond yields and expectations of changes in deals ranging from mergers and acquisitions to the U.S. dollar.

If the polls are favorable for the vice president, I’m sure we’ll see a “Harris trade” soon, specifically bets on clean energy stocks, health care companies, and the like.

But I would stay away from all of these deals if your goal is to save money for important things like retirement, education, healthcare, a car or a house. Staying invested for the long haul, preferably in low-cost index funds that cover the entire stock and bond market, is the approach I prefer.

This year, politics are too important to ignore. But I’d leave the Trump trade — or the Harris trade, for that matter — to the professionals.

Prisons

The presidential campaign is a dizzying one. Vice President Kamala Harris replaced President Biden Joe just last week as the presumptive Democratic nominee for the White House. Former President Donald Trump narrowly escaped an assassin’s bullet just days before he officially took office as the Republican nominee. That ever-changing outlook hasn’t stopped traders from seeking politically-related profits.

Consider private prison companies Geo Group and CoreCivic. Their shares rose more than 17 percent from June 27, the night of Biden’s disastrous presidential debate, to July 19, the last trading day before Biden passed the baton to Harris.

Trump’s chances of winning seemed good, and Wall Street analysts pointed out that if reelected, he had promised to expel millions of illegal immigrants from the country—and lock up many of them first. A second Trump administration would likely be optimistic about prison action.

A similar bet on private prisons paid off in the weeks after Trump was elected in 2016, and again when prison stocks soared in his first year in office. Those gains were widely reported. But I looked at the stock history and found that those gains were short-lived: Over the course of the Trump administration, Geo Group and CoreCivic are down more than 67 percent each, according to FactSet data.

Yet, counterintuitively, those same prison operations have performed remarkably well under the Biden administration — up more than 87 percent each through July 19. It would be hard to argue that the Biden administration is more favorable to private prisons or tougher on immigration than the Trump administration — although I suppose one could argue that Harris, with her law enforcement background, might be tougher on crime than Trump.

However, the performance of prison stocks shows, above all, that investments in specific sectors dictated by political considerations are often unwise, and that presidents have less influence on the stock market than is commonly believed.

Guns and oil

Energy stocks are another example. Fossil fuel stocks have fared much better under Biden — and former President Barack Obama — than they have under Trump. Clean energy stocks, however, have been excellent investments under Trump and average under two Democratic presidents. That had little to do with administration policy and a lot to do with geopolitics — most recently, wars in Ukraine and the Middle East that have kept energy prices high.

Gun stocks are another example of questionable assumptions that are leading investors to lose money. Trump’s trading narrative includes bets on gun stocks like Sturm, Ruger and Smith & Wesson. They jumped more than 8 percent each in the three trading days following the assassination attempt on Trump. Gun stocks are expected to be a good buy if you believe Trump will be reelected, as he pledged to protect gun ownership at the National Rifle Association convention in May.

But I think a likely reason gun stocks are up is something I wrote about during the Obama administration. When there’s a lot of high-profile gun violence, a lot of people buy guns—partly for self-defense and partly out of fear that serious gun control will eventually gain traction and make it harder to buy firearms and ammunition. Whatever the reason, gun stocks have been a bad investment. From Jan. 20, 2017, the day Trump was inaugurated, through Tuesday, two gun companies are down—down 1 percent for Smith & Wesson and down 13.6 percent for Sturm, Ruger. The S&P 500 is up more than 144 percent.

Basics

Some of Trump’s trade ideas could turn into significant changes in the economy and markets. The problem is that there’s no way to know in advance whether that will be true.

For example, the Trump-JD Vance team claims to want a “weaker dollar.” But devaluing the U.S. dollar through government action is a risky proposition. The U.S. dollar is buying a lot of other currencies right now for the textbook reasons: interest rates, inflation, and trade levels move exchange rates. In addition, Trump’s other promises—raising tariffs—could strengthen the U.S. dollar. If he wins the election, we’ll find out how these conflicting policies play out. Traders can bet, but investors are better off staying on the sidelines.

More significant now are the stock market moves that have little to do with politics. Big AI-linked stocks like Nvidia, Microsoft and Alphabet have become highly valued, with some money moving into smaller, cheaper stocks. Overall, corporate profits appear strong, inflation has been subdued and hopes for a Fed rate cut have been renewed.

Everything you need to know, but not for short-term trading. It is wiser to stick to the basics, such as rebalancing stocks and bonds in your portfolio, to be in good financial shape, regardless of what happens in the economic or political universe, this summer or any other season. NY TIMES