The ‘Trump Trade’ Is Turning Into a Loser in the Stock Market

tb8frq5wsdrm84258w7lf(hr_media_dl_1.png Bloomberg

Article content

(Bloomberg) — When Donald Trump was elected to a second term as president, amateur and professional traders alike rushed to identify which stocks would benefit from his aggressive economic policies.

Article content

While that strategy got off to a promising start, the so-called Trump Trade is now in tatters. Ned Davis Research’s Trump Trade Index — which consists of a dozen exchange-traded funds expected to benefit from White House policies on homebuilding, defense spending and the re-shoring of manufacturing — has slumped about 16% since May after clobbering the S&P 500 Index at the beginning of the year. Several of the ETFs in the gauge are now trading lower for the year. 

Article content

Article content

Article content

The breakdown in the Trump Trade is mostly a result of the US conflict with Iran, which has pushed up energy prices, inflation expectations, interest rates and the value of the US dollar, Ned Davis Research wrote in a report this week. 

Article content

Article content

“All this is tied to the Iran war and inflation,” said Pat Tschosik, chief thematic strategist at Ned Davis Research. “Let’s just go three months without some sort of inflation shock, right? Between some sort of tariff, or war, or supply chain disruption, could we just go three months without some sort of supply shock?”

Article content

The slide comes after many Trump Trade bets posted double-digit percentage gains through the first three months of the year. ETFs like the VanEck Rare Earth and Strategic Metals ETF, the Global X Uranium ETF and the Global X Defense Tech ETF were all up at least 20% at various points in the first quarter and held some of those gains in the second quarter before eventually flipping into the red.

Article content

Investors who bet on the success of Trump’s agenda faced several disappointments this year, according to Matt Gertken, chief geopolitical strategist at BCA Research Inc. Those include the Iran war’s negative effects on the economy, like higher inflation that hampered manufacturing and housing investment, as well as the outperformance of AI-investing themes at the expense of specific stocks whose fates are tied to the economic cycle.

Article content

Article content

“Investors who bet on AI and against traditional cyclical sectors outperformed, while those who saw Trump as a champion of US manufacturing, heavy industry and working-class consumption suffered,” Gertken said.

Article content

Fund flows point to a steady stream of investors abandoning some of the trades. The Truth Social God Bless America ETF has seen consistent outflows every month since the war began. Trading under the ticker YALL and offering outsized exposure to energy, industrials and financials, the fund has dropped more than 4% this year while the S&P 500 has climbed about 8%.

Article content

Notably, the fund does not own shares in the Truth Social owner Trump Media & Technology Group Corp., which has repeatedly hit record lows this year, though it has rallied in July. The stock is still down 35% year to date.

Article content

Not all Trump-related ETFs are under water. The Point Bridge America First ETF, which snagged the ticker MAGA, dropped less than the broad US stock market in March at the beginning of the Iran war and has remained higher for the year. 

Article content

“The Iran war is causing some concern around energy prices,” said Hal Lambert, founder of Point Bridge Capital. While that has posed a challenge for the re-shoring themes in the near term, “there’s a lot of energy in the MAGA ETF” and that has helped the fund more or less match the S&P 500’s performance.