Let the Pros Play With the ‘Trump (or Harris) Trade’

“Sell in May and go away,” is an old Wall Street adage. I first heard about it from my father, a New York businessman, on a hot afternoon back in the last century.

“The brokers and the people with real money are in the Hamptons now,” he shouted over the bedlam of city traffic as he drove us home in an un-air-conditioned Ford sedan. “They just shut down for the summer and relax. The rest of us, who are still working, might as well forget about the market, too, because nothing’s happening.” In an election year, he said, that was doubly true. Nobody but the pros paid close attention to politics until Labor Day.

That was the theory, anyway. Ignoring both politics and the markets is clearly not feasible this summer. If you blinked, you missed riveting political news. And partly because of politics, specific sectors and fixed-income instruments have been fluctuating. But as far as investing goes, quick trades are hazardous, and I think most people would be better off at the beach.

“The Trump trade” is what financial strategies associated with the shifting fortunes of the former president are being called. Such market bets have been connected by Wall Street analysts to movements in the prices of gun, prison and fossil-fuel energy stocks. And the Trump trade has also been attributed to small moves in bond yields and in expectations of changes in transactions, from mergers and acquisitions to the exchange rate of the dollar.

If the vice president’s polling is strong, I’m sure there will soon be a Harris trade, too, with bets on clean energy stocks, health care companies and the like.

But I’d keep away from all these trades if your goal is accumulating money for critical goals like retirement or education or health care or a car or a house. Staying invested for the long haul, preferably in low-cost index funds that hold the entire stock and bond markets, is the approach I favor.

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

Prisons

The presidential campaign has been dizzying. Vice President Kamala Harris replaced President Biden just this past week as the presumptive Democratic nominee for the White House. Former President Donald J. Trump narrowly escaped an assassin’s bullet just days before officially becoming the Republican nominee. This ever-changing outlook hasn’t stopped traders from looking for profits linked to politics.

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

Mr. Trump’s odds of winning looked strong, and Wall Street analysts pointed out that, if re-elected, he promised to expel millions of undocumented immigrants — and to lock many of them up first. A second Trump administration would presumably be bullish for prison stocks.

A similar bet on private prisons paid off in the weeks after Mr. Trump’s election in 2016, as I wrote back then, and, again, as the prisons stocks soared further in his first year in office. Those gains got plenty of coverage. But I’ve looked back at the stock histories, and found that those gains were short-lived: Over the entire Trump administration, Geo Group and CoreCivic fell more than 67 percent each, according to FactSet data.

Yet counter-intuitively, those same prison stocks have done extremely well during the Biden administration — with gains through July 19 of more than 87 percent each. It would be hard to argue that the Biden administration is more favorably inclined toward private prisons, or tougher on immigration, than the Trump administration — though I suppose a case can be made that Ms. Harris, with her law enforcement background, will be tougher on crime than Mr. Trump.

But the performance of the prison stocks mainly illustrates that politically inspired bets on particular sectors are often ill-advised, and that presidents have less of an effect on the stock market than is often understood.

Guns and Oil

Energy stocks are another example. Fossil fuel shares have fared much better under Mr. Biden — and under President Barack Obama, too — than under President Trump. Yet, as I pointed out last week, clean-energy stocks were outstanding investments in the Trump administration and mediocre ones under the two Democratic presidents. That had little to do with administration policies, and a great deal to do with geopolitics — recently, the wars in Ukraine and the Middle East, which have kept energy prices high.

Gun company shares are yet another instance of questionable assumptions leading investors into losses. The Trump trade narrative includes bets on shares of gun companies, like Sturm, Ruger and Smith & Wesson. They jumped more than 8 percent each in the three trading days after the attempted assassination of Mr. Trump. Gun shares are said to be a good opportunity if you believe Mr. Trump will be re-elected because he pledged at the National Rifle Association convention in May to protect gun ownership.

But I think the likely reason for gun shares’ rise is a phenomenon that I wrote about during the Obama administration. When well-publicized gun violence occurs, many people buy guns — partly for self-protection and partly out of fear that serious gun control will at last gain traction and it will become more difficult to buy firearms and ammunition. Whatever the reason, gun shares have been poor investments. From Jan. 20, 2017, Mr. Trump’s Inauguration Day, through Tuesday, the two gun companies were down — minus 1 percent for Smith & Wesson and minus 13.6 percent for Sturm, Ruger. The S&P 500 was up more than 144 percent.

Fundamentals

Some Trump trade notions could turn into meaningful shifts in the economy and the markets. The problem is that there’s no way of knowing in advance whether that will be true.

For example, the Trump-Vance team says it wants a “weaker dollar.” But devaluing the dollar through government action is a risky undertaking. The dollar buys a lot in other currencies now for textbook reasons: Interest rates, inflation and trade levels move foreign exchange rates. Furthermore, another of Mr. Trump’s pledges — raising tariffs — could strengthen the dollar. If he wins the election, we will learn how these clashing policies develop. Traders may be placing bets but investors are better off on the sidelines.

More consequential now are shifts in the stock market that have little to do with politics. Big stocks like Nvidia, Microsoft and Alphabet with a connection to artificial intelligence have become richly valued and some money has shifted to smaller, cheaper stocks. Over all, corporate earnings seem strong, inflation has been subdued and there’s renewed hope of interest rate cuts by the Federal Reserve.

All that is worth knowing, but not for short-term trading. It’s wiser to stick to fundamentals, like rebalancing the stocks and bonds in your portfolio so you will be in good financial shape, regardless of what happens in the economic or political universe, this summer or any season.