When Donald Trump beat Hillary Clinton in the 2016 presidential race, commodity investors cheered.
Shares of the S&P 500 rose 1% the morning after the election, driven by a 1.9% rise in energy stocks and a 2.3% jump in basic materials, as measured by iShares sector indices.
The jump in energy stocks was partly due to Trump’s stance on energy.
“The shale energy revolution will unleash massive wealth for America,” Trump told audience members in Pittsburgh during his 2016 campaign. “And we will end the war on coal and the war on miners.”
And markets took Trump for his word.
Within a month of his election victory, the president-elect oversaw another 8.6% surge in the iShares U.S. Energy ETF (IYE) as speculators salivated over the idea of greater fossil fuel supplies.
But what came next was disastrous for energy investors and their companies.
Over the two years following Trump’s inauguration in 2017, shares of energy firms plummeted 17.3%. They would continue sliding through the remainder of his presidency.
With that in mind, let’s take a closer look at how energy stocks fared under Trump’s first term… consider the potential impact of a “Trump 2.0” presidency on the sector… and dig up some of the best ways to play it.
Cheap Gas, High Cost
Following the energy sector’s struggling performance through 2019, the U.S. Energy Information Agency (EIA) announced…
Increases in U.S. petroleum production put downward pressure on crude oil prices…
In addition, the production increases likely limited the effect on prices from the attack on Saudi Arabia, production cut announcements from [OPEC], and U.S. sanctions on Iran and Venezuela that limited crude oil exports from those countries.
Essentially, America’s shale revolution deepened an already-growing glut of U.S. supply.
Oil production volumes increased 24%, depressing domestic prices and forcing dozens of major producers out of business. At least five dozen major energy firms went bankrupt over that period, with the top five of them wiping out $11 billion of capital.
American consumers got cheap gas, but oil drillers paid a steep price.
However, that price crash benefited some energy companies.
Cheniere Energy Inc. (LNG) pivoted toward liquifying and exporting the growing amounts of cheap gas available. By 2019, the firm had seen a 50% rise in share price. Petroleum refining firm CVR Energy Inc. (CVI) did even better, notching a 69% increase. Fellow refiners Valero Energy Corp. (VLO), Marathon Petroleum Corp. (MPC),and ConocoPhillips (COP) all saw double-digit gains.
These energy firms thrived because their revenues are tied to the volumes of hydrocarbons they handle, not the price. The cheaper the oil and gas America pumped from the ground, the more money these “downstream” companies printed every quarter.
Pipeline firms succeeded by acting like toll roads, taking the same fee for every “car” (i.e., cubic foot of gas) regardless of the vehicle’s value. Refiners benefited from cheaper feedstocks. And exporters saw a bonanza as the world snapped up America’s low-cost fuels.
Exploration and production companies (“upstream” energy companies), on the other hand, saw the value of their reserves drop for every decline in energy prices.
We see a similar story playing out in the energy sector under a Trump 2.0 presidency.
A Second Round
In the days following Trump’s 2024 presidential election, shares of the S&P 500 rose 2.5%, while energy stocks jumped 3.5%. Much like eight years ago, investors today are wholeheartedly expecting cuts in “green” regulation and other Biden administration limits to energy production.
However, we’re largely ignoring American upstream oil and gas producers at this stage.
Though some upstream companies have risen as much as 20% since the election, we believe the real long-term gainers will be those that benefit even if prices collapse again.
Of course, today’s world looks vastly different from 2016.
The promise of a 10% to 20% baseline tariff could trigger retaliatory measures, making American energy exports uncompetitive. Renewable energy is now price-competitive with most U.S.-produced coal, making a resurgence in the latter industry even less likely than before. And major oil-producing nations like Russia and Saudi Arabia are facing greater (potentially existential) threats that often make OPEC leaders unpredictable.
But if things go as we expect, we believe holding on to a diversified group of volume-sensitive energy firms remains the best way to play a Trump 2.0 presidency.
Another important way to play a Trump presidency – no matter what broader markets do – is through cash.
The reality is that real, hold-in-your-hand cash is of the utmost importance right now.
InvestorPlace analyst Louis Navellier has developed a stock grading system to identify stocks ripe for short-term gains, which can then be treated like income.
For example, an initial $7,500 investment in past recommendations paid out a $3,375 windfall in a one-month timeframe… $4,650 in three months… $11,925 in five months… and $16,875 in 11 months…
And his Quantum Cash Project is designed to identify payout opportunities regardless of economic uncertainty, persistent risks of inflation, or any market condition.
In his recent presentation, Louis introduces this income-generating approach that he projects will identify at least $60,000 in potential income opportunities over the next 12 months.
The system requires no special skills, employs no risky leverage, and can generate income whether you’re working or retired.
To learn more about this tested strategy and how it works, click here to watch Louis’s special presentation.
Regards,
Thomas Yeung
Markets Analyst, InvestorPlace
