Rolling Up Sleeves: How Wall Street is Reacting to Trump's Cabinet Picks

Stocks traded higher yesterday as interest rates steadied and investors' fears melted into optimism. Existing Home Sales picked up in October following September's mortgage rate dip; by the end of October rates were significantly higher leaving investors wondering if the rise in sales could stall.

On second thought. Wall Street has been paying close attention to Washington DC. Specifically, to the back rooms where the Trump transition team has been churning out nominees for key cabinet roles. Ya think? Well, it has been a minute since the elections and the results are still reverberating through the markets. Let's start by taking a look at one of those new charts that I added to my chartbook to give us an idea of how sectors have behaved since the betting markets and polls started to reveal the momentum that landed Trump in the top spot. What is interesting from the chart is how all those sectors slowly began to factor in a Trump win prior to election day, but even more interesting is how they all behaved after election day when Trump won. Take a look at the chart.

This past week of trade started to reflect investors rolling up their sleeves and questioning those, so-called "Trump trades," and it is evident in this chart. Let's focus on the big winners and big losers for a moment. Starting with winners, we can see that Consumer Discretionary stocks were the initial winner, post-election. We can attribute that to the likelihood of stimulative policies that will put more discretionary dollars in consumers' pockets. Ya, maybe, but if I told you that Tesla was part of the sector, you would quickly realize that its post-election rocket ride probably distorted the sector's performance. The stock jumped some 40% in the four sessions after Trump's win relenting only about 3% since. In the past week, we did get some interesting and mostly positive earnings from retailers, but clearly not enough to keep the sector in the top spot. Let's attribute the initial rise to the "Musk effect," which has by no means relented, though it may be slightly weakened.

That leaves Financials in the top spot with a last-minute surge. More of that sleeve rolling, or pencil sharpening is evident here. Investors have examined the case that a Trump administration would be good for the broader sector that includes Insurance, Banks, and Diversified Financials. The latter two are expected to benefit from direct and indirect deregulation. Lowering the regulatory bar for traditional banks could certainly provide some tailwind for the industry. Diversified Financials will benefit from indirect deregulation which can pave the way for more transaction revenue. Yesterday's announcement of current SEC Chair Gary Gensler's retirement can also provide some lift for the broader sector as he is known for his more restrictive stance on financial markets and cryptocurrencies. These are all part of the Trump effect.

Just eyeballing the chart, we note that all sectors except for Communications Services had a recent surge. This can be mostly attributed to the modest, broader index gains over the past few days. Communications Services as the outlying decliner is most likely due to the Department of Justice recommending that Alphabet divest its Chrome Browser business. Yes, Alphabet is in Com Services along with fellow Mag-7 stock Meta. Interestingly, a Trump DOJ and FTC would be expected to be less litigious than those under the Biden administration. Though this can have broader positive effects across all sectors, those hopes have apparently been lost on the pending matter between the DOJ and Alphabet. As a side note on that, many legal experts assess that a full breakup of the company is unlikely. Still, many financial experts believe that the sum of Alphabet's parts may be worth more than the whole. Both should be positives for the stock.

We can't look at this chart without noticing how badly the Healthcare sector has been punished. The sector was already under pressure anticipating lots of uncertainty under a Republican-led Congress, but it was Trump's pick of Robert F. Kennedy Jr. for Secretary of Health and Human Services that really sent the sector into a tailspin, which fell by nearly 4% after the announcement. The broader sector contains two industry groups, Health Care Equipment & Services and Pharmaceuticals Biotechnology & Life Sciences. Drilling down into the latter, we have a number of vaccine providers such as Pfizer and Moderna, who have suffered painful declines since the RFK announcement. Kennedy has been very vocal in his opposition to vaccines. Additionally weight-loss winner Eli Lilly lost more than 10% right after the announcement, as Kennedy has been a skeptic of the weight loss drugs that make up just over 50% of the company's expected 2025 revenues. Biotech heavyweight Amgen also suffered losses in the wake of the Kennedy announcement, though its weight-loss solution has not even hit the market yet. Looking at these, it is possible that investors, over the past few sessions, have concluded that selling in the sector was, perhaps, a bit overdone? While it is certainly true that Kennedy could impact vaccine policy, his direct impact on drug makers of obesity drugs is a bit more of a stretch, most likely requiring legislation. Finally, it is important to note that Kennedy is not guaranteed confirmation. Perhaps investors with now sharpened pencils may be feeling like the selling was too intense for the sector.

So, what does this all mean? If you believe in the efficient market hypothesis, the markets have already factored in all known information about stocks. Everything from analyst recommendations through Trump transition team recommendations. Will all of Trumps nominees win confirmation of Senate, narrowly controlled by Republicans? Assuming the nominees get confirmed, what impacts will the neophytes actually have on the companies in our portfolios. Will Trump himself temper his cabinet members to keep the bulls running? As more and more information hits the markets, we can expect more adjustments, and with those adjustments, perhaps some opportunities.

YESTERDAY'S MARKETS

NEXT UP

• S&P Global Flash PMIs (November) - Manufacturing may have risen to 48.9 from 48.5, while Services may be unchanged at 55.
• University of Michigan Sentiment (November) is expected to be revised up to 73.9 from earlier estimates of 73.0.
• Next week will be a big one for releases with more housing numbers, regional Fed reports, Consumer Confidence, GDP, Durable Goods Orders, Personal Income, Personal Spending, and PCE Deflator. Also, we will get minutes from the Fed's last FOMC meeting which could have a big impact on market conditions. Don't miss any of these. Get ahead of it by tuning in on Monday to download your weekly calendars for times and details.

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