Trump Triumphs: Stocks & ETFs To Rock Or Shock

Republicans have won back the White House with its candidate Donald Trump trumping several popular polls and defeating the favored Democratic nominee Hillary Clinton. The S&P 500 stock market index was one of the leading indicators among the very few forecasters that put Trump ahead of Clinton. The index viewed 86% chances of Trump winning. And true to its strong reputation of being correct (86.4% of the time since 1928), this time too, the gauge did not let down market watchers.

Needless to say, election 2016 echoed Brexit -- both defied popular polls. Basically, Trump took over most of the swing states. With this, Republicans also took control of both the House and Senate, leaving the world to speculate what changes await them. It is widely apprehend that Trump’s polices toward the U.S. and abroad will spur volatility (read: 10 ETFs to Watch Today and After The Election).

Immediate Impact

Broader Market Slump

Republicans do not have a good reputation of pushing the market higher with average annual return of the Dow Jones Industrial Average being 3% since 1900, against 7% returns seen in Democratic rule.

As a result, a market crash is well expected as the unprecedented or rather market-unfriendly event is not priced in at the current level. Just as Trump started giving cues of a win, Dow futures plunged more than 790 points or 4.5%. Nasdaq futures were off 5% at the time of writing. U.S. dollar futures are also on downhill ride (read: 9 ETF Ways to Guard Against S&P 500's Losing Streak).

Barclays (LON:BARC) sees a 13% plunge in the S&P 500 on Trump’s victory and Citi projects an immediate crash of up to 5% for the S&P 500 on Trump’s triumph. Stay away from SPDR S&P 500 ETF (NYSE:SPY) (AX:SPY) and SPDR Dow Jones Industrial Average ETF (V:DIA) , rather bet on inverse ETFs like ProShares Short S&P500 ETF SH, ProShares Short Dow30 (DOG) and ProShares Short QQQ PSQ(read: 7 Inverse ETFs to Play Election Uncertainty).

Leave Mexico/Short Mexico

Mexico peso is a Trump-unfriendly investment due to his plans of building a wall along the border as part of his immigration strategy and making Mexico pay for it. Mexico peso slumped over 12% to record low on cues of Trump’s victory. Skirt Mexico ETF iShares MSCI Mexico Capped EWW or Mexican stocks like Grupo Aeroportuario del Sureste, SAB de CV (NYSE:ASR) . You can however buy inverse Mexico ETF ProShares UltraShort MSCI Mexico Cpd IMI (LON:IMI) SMK.

Gold Bullion & Mining Stocks to Dazzle

The initial impact will be a safe haven rally. And so far, what Trump has delivered in speeches is mostly “inward looking,” as per ABN Amro. As per the research organization, Trump’s policies may hinder U.S. growth and cause an upheaval in the domestic market pushing the safe-resort gold and ETF SPDR Gold Shares (NYSE:GLD) (V:GLD) higher.

Gold bullion futures were up about 4.9% at the time of writing. Investors should also take a look at gold mining equities like Timmins Gold Corp. TGD and Royal Gold Inc. (V:GLD) having a Zacks Rank #2 (Buy) each (read: Does The Donald Hold The Trump Card for Gold ETFs?).

Treasury a Treasure Trove

Thanks to a flight to safety, yields on long-term U.S. Treasury bonds should come down and bond prices should rise. iShares 20+ Year Treasury Bond (NASDAQ:TLT) (V:TLT) should thus gain after Trump’s victory. Let’s not forget, he is ‘a low interest rate person,’ boding well for bonds.

Medium-to-Long Term Impact

Bet Big on Infrastructure & Utility

Donald Trump is in favor of beefing up public spending by hundreds of billions of dollars on infrastructure. In fact, he is expected to offer $137 billion in tax credits to private construction companies undertaking infrastructure projects. Plus, a low rate environment would be an added advantage.

Thus, Utilities ETFs like First Trust Utilities AlphaDEX Fund (FXU) or construction ETFs like PowerShares Dynamic Building & Construction Portfolio ETF PKB are likely to benefit from this trend. Willdan Group Inc. (NASDAQ:WLDN) and SJW Corp. (NYSE:SJW) may get a place in your equity portfolio (read: Equity ETFs that Can Gain Even If Trump Wins).

Encouraging Fossil Fuels

Taking a completely difference stance from president Obama, Trump is ready to push for more fossil fuel generation, be it from crude oil, natural gas or coal. This in turn may hit low carbon and clean ETFs like iShares MSCI ACWI Low Carbon Target ETF CRBN and First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN, while VanEck Vectors Coal ETF KOL and Zacks Rank #2 coal stock CONSOL Energy Inc. (NYSE:CNX) may gain ahead.

Consumer Discretionary to Cheer

The Trump tax plan would lower the top income tax bracket from 39.6% to 33%, eradicate alternative minimum tax, slash corporate income tax by more than half and remove estate tax, as per the source. Lower taxes could propel consumer spending on the domestic level, benefitting consumer discretionary ETFs like Consumer Discret Sel Sect SPDR ETF XLY or the casino gaming ETF like VanEck Vectors Gaming ETF BJK.

A few top-rated stock selections in this category are ULTA Salon, Cosmetics & Fragrance Inc. ULTA, Tilly's Inc. TLYS, Las Vegas Sands Corp. (NYSE:LVS) and Vail Resorts Inc. (NYSE:MTN) .

Clear Path Ahead of Biotech

While Clinton-induced price-gouging issues are no more that a big hurdle, pharma and biotech stocks should get a break from controversies, at least for some time. So, the immediate impact should be positive on biotech ETFs like SPDR S&P Biotech ETF XBI. Zacks Rank #1 stocks Anika Therapeutics Inc. (NASDAQ:ANIK) and Cambrex Corporation (NYSE:CBM) could be on your wish list.

Regional Banks to Perform Better?

Historically, financial stocks have performed better with republicans in the White House thanks to their tolerant policies. However, since Trump intends to separate the big banks’ commercial and investment banking arms, it is better to tilt toward smaller-scale regional banks. So, SPDR S&P Regional Banking ETF KRE could be a lucrative choice.

Now, since Midwest banks are in the top 9% of the Zacks Industry Rank, Zacks Rank #1 stocks Eagle Bancorp Montana, Inc. (NASDAQ:EBMT) and Enterprise Financial Services Corp. (NASDAQ:EFSC) deserve a look. However, if bond yields continue to drop, the scenario might not be that great for financial stocks.

Defense in Sweet Spot

Trump appears aggressive in foreign policy. He stressed the need for additional investments in missile defense in Europe. So, defense and aerospace ETFs like iShares US Aerospace & Defense ITA or stocks like Northrop Grumman (NYSE:NOC) should soar.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>