Wall Street has been pouring money into Trump deals, but if history is any indication, investors should be wary before committing money based on campaign promises. In the weeks leading up to the presidential election and in the days since, investors have been pouring money into stocks tied to Donald Trump’s policies, hoping that some companies would benefit from the president-elect’s return to the White House. Bank stocks have rallied sharply, with the SPDR S&P Regional Banking ETF (KRE) up about 13% this month. Small-cap stocks soared, with the Russell 2000 index up about 9%. Bitcoin breaks through $93,000 for the first time. But that doesn’t mean those bets will pay off, Wells Fargo Investment Institute said. In fact, traders are increasing exposure to asset classes based on which they believe a Trump (or Biden) administration will win, but they have been disappointed by past results. “For investors hoping that campaign promises will translate into outperformance in policy-targeted assets, we urge caution,” Austin Pickle, an investment strategy analyst at Wells Fargo, wrote on Monday. “There are several instructive examples where investors overemphasize the expected benefits of potential policy changes, only to find that the policies fail to materialize or that the policy benefits fail to translate into expected returns.” Wells Fargo Investment Institute found that small-cap, real estate and traditional energy companies – Both are seen as beneficiaries of Trump’s policies – initially rising after the 2016 US presidential election but underperforming during the president-elect’s first term. Granted, a candidate’s policies could have a big impact, but they should be weighed against broader economic growth, whether earnings are expanding and the direction of interest rates — all of which more directly affect stocks, read Wells Fargo’s report. Major stock indexes were little changed in afternoon trading on Wednesday, losing some momentum after surging to record highs over the past week. The Dow Jones Industrial Average topped 44,000 points for the first time, and the S&P 500 soared above 6,000 points. Here’s a breakdown of the different asset classes and their past and recent performance. Small Caps Small cap stocks, represented by the iShares Russell 2000 ETF (IWM), are expected to benefit from Trump’s pro-business policies. From Election Day to year-end 2016, the asset class relatively outperformed the S&P 500 by 8%. However, one year after Election Day, small-cap stocks are up just over 2% relative to the broader index. In fact, small-cap stocks fell more than 22% from Election Day 2016 to Election Day 2020. For the month, IWM surged 9%. IWM 1M Mountain IWM Real Estate Then there’s the Real Estate Select Sector SPDR Fund (XLRE), which could get a boost from Trump’s pledge to cut regulations and loosen licensing requirements related to the real estate market. In 2016, however, XLRE fell more than 4% relative to the S&P 500 from Election Day to the end of the year. Extending the timeframe to one year after Election Day, the ETF underperformed the broader index by 11%. The industry has fallen more than 40% throughout Trump’s term. In November, XLRE declined slightly month-on-month. Energy With Trump making energy a focus of his presidential campaign and promising to “drill, baby, drill,” energy stocks are expected to get a big boost. However, the sector represented by the Energy Select Sector SPDR Fund (XLE) has been a sore spot during the Trump presidency. From Election Day 2016 through the rest of the year, XLE gained 4% relative to the S&P 500. Energy stocks have plummeted throughout Trump’s four years in office. For the month, XLE is up 7%. XLE 1M Mountain XLE — CNBC’s Fred Imbert contributed to this report.
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