A cartoon image of President-elect Donald Trump in Hong Kong as bitcoin went over $100,000. - Paul Yeung/Bloomberg News
The best-performing bets on Donald Trump’s return to the White House show that investors expect four things: a clampdown on immigration, rewards for his new buddy Elon Musk, easier regulation and transfers from taxpayers to holders of state-backed mortgage guarantors Fannie Mae and Freddie Mac.
Initial hopes that Trump’s promises of tax cuts and tariffs might help smaller stocks have faded, as expectations that they would push up inflation lifted bond yields and the dollar.
Some notable “Trump trades,” or bets on what the incoming president will do, have been highly profitable to investors in a handful of stocks since the election, while others have proven lackluster. Investors have struggled to navigate the election, underlining the difficulty Wall Street so often has with politics.
What has worked:
Fannie and Freddie: Best of all in percentage terms has been the bet on the new administration privatizing the mortgage-finance giants, which holders of the preferred shares think will give them a multibillion-dollar windfall for doing nothing. The value of Fannie and Freddie, which are traded over the counter, has more than tripled since the election, helped by hedge-fund manager Bill Ackman publicly pushing the trade—although shares of both plunged this past week, losing almost a quarter of their value in two days.
Tesla: The best stock-market Trump trade by far in dollar terms has been to buy Tesla. Trump might not like electric cars, but the budding bromance with Musk has boosted the stock’s market-value by half a trillion dollars since the market close on Election Day. That is 35% of the total gains of S&P 500 companies.
Private prisons: The most successful stock-market bet on a Trump promise was that CoreCivic and Geo Group, which run detention centers for immigrants, would benefit from a rise in deportations. Shares in Geo more than doubled by Thursday’s close and CoreCivic is up 66%, about the same percentage gain as Tesla.
Bitcoin has been a runaway winner on the back of Trump’s promises to stop the Securities and Exchange Commission’s anti-crypto stance, slash regulation and build a government stockpile that true believers hope will be added to and treated as currency reserves, similar to gold. Bitcoin and the No. 2 cryptocurrency, ether, are both up around 40% since the election.
What hasn’t worked:
Stock trades based on a stronger economy haven’t been so successful. Bond yields and the dollar have risen fast, helped by the Federal Reserve paring back forecasts for interest-rate cuts this year amid stickier-than-expected inflation and worries about tariffs and deportations. Wall Street analysts have slightly cut their predictions for 2025 S&P 500 earnings, and the S&P’s price gains have been driven once again by a handful of Big Tech stocks.
The bet on smaller companies has fallen flat. The Russell 2000 index of smaller stocks has given back all of its postelection jump, while more than half of the S&P 500 companies were down from election night to Thursday’s close.
Big Oil stocks are down, despite “drill baby drill” being one of the new president’s mantras. Gold is down. Many European defense stocks have done well in local currencies—the theory being that Europe will need to buy more of its own weapons—but in dollar terms the FTSE index of Western European aerospace and defense stocks is flat.
Trump Media & Technology leapt 20% in the past two weeks but from the election to the end of the year was flat. It is far from obvious how shareholders in loss-making DJT, its ticker symbol, will actually make money out of Trump being in the White House.
DJT buyers are relying on a strange sort of hope, that the president of the U.S. will engineer government money, support or contracts to flow to an unsuccessful company purely because he owns a big chunk of it. Possible, but not how most people would want a president to behave.
As an aside, it isn’t that Trump trades were priced in anticipation of his win. All the big winners since then were much more muted in the months before the election.
Where do we go from here? My concern would be that the spectacular gains for the most successful Trump trades mean there is a serious risk of disappointment. Lots of Democrats predict that Trump’s and Musk’s strong personalities make a falling-out inevitable, but investors could lose even if the two stay close. How will the electric-car maker actually benefit from the friendship? Easier regulations or the end of enforcement actions are possible but aren’t worth half a trillion dollars.
Even if Trump does want to help his new friend, along the lines of the hope embedded in the DJT price, it would be less obvious if done via government contracts for his private companies than via Tesla, where after all most of the gains don’t go to Musk himself.
Equally, giving taxpayer dollars to Fannie and Freddie stockholders wouldn’t support any of Trump’s stated goals. And if deportations of immigrants take longer, or are less aggressive, than Geo and CoreCivic shareholders hope—plausible, given how optimism has been baked in—then those stocks could drop back fast. Migrants might also leave voluntarily in greater numbers, avoiding any need to lock them up.
The speculation about what Trump will do on immigration, tariffs, tax and regulation should be replaced by fact soon—and we’ll be able to tell which Trump trades were on the money and which, as he might put it, were for losers.
