By Kevin D. Mahn, president and chief investment officer, Hennion & Walsh Asset Management

US stocks raced upward following the election of Donald Trump on November 8, 2016, with the Dow Jones Industrial Average (^DJI) gaining over 8% and the S&P 500 index (^GSPC) advancing nearly 5% (both on a total return basis) from November 8, 2016, through December 30, 2016. Much of these gains were attributed to what news pundits are referring to as the “Trump trade.” On a high level, the Trump trade can be broken into four main areas of focus that many believe will be part of Republican President Donald Trump’s administration, backed by a Republican-controlled Senate and House of Representatives. These four areas are:

1. Regulations
2. Taxes
3. Trade
4. Infrastructure

Current market consensus suggests that a Trump administration would be favorable for future US economic growth and beneficial for the US employment outlook. In terms of investment opportunities consistent with this optimistic market consensus, absent any specific proposals or introduced legislation, I look to “Donald Trump’s Contract with the American Voter” for indications of which areas of the market could potentially benefit from these primary areas of focus.

While the Trump trade can be dissected into many different themes, I highlight below a few of the key themes described within this document, along with the potential benefiting asset classes/sectors. I present this from my perspective with the understanding that all of these initiatives are subject to change and may not come to reality or deliver upon the intended results:

Key theme: Lifting of restrictions of American energy reserves, including shale, oil, natural gas and oil
Potentially benefiting asset classes/sectors: US equities, energy (XLE)

Key theme: Allowing energy infrastructure projects to move forward and spurring infrastructure investments
Potentially benefiting asset classes/sectors: US equities, energy (XLE), materials (XLB), and industrials (XLI)

Key theme: Repairing America’s water and environmental infrastructure
Potentially benefiting asset classes/sectors: US equities, materials (XLB), industrials (XLI) and US fixed-income/municipal bond strategies (MUB)

Key theme: Repealing and replacing of Obamacare
Potentially benefiting asset classes/sectors: US equities, health care (XLV)

Key theme: Speeding the approval process of life-saving medications in relation to the 4,000+ drugs currently awaiting approval at the Federal Drug Administration
Potentially benefiting asset classes/sectors: US equities, health care(XLV), specifically biotechnology (IBB)

This year is shaping up to be one of much uncertainty and potential volatility with numerous investment opportunities that appear attractive. While looking to uncover these investment opportunities, investors would be wise to build, or maintain, balanced and diversified portfolios consistent with their own financial objectives, tolerance for risk and investment time frames while resisting the temptation to make short-term investment decisions based upon potential fiscal policies or economic events.

At Hennion & Walsh, we are optimistic about the potential for US economic growth and US stock market gains, with limited and measured interest rate increases in 2017. However, we remain concerned about prospects for additional economic growth in other developed market economies and emerging market economies outside of the US.

We are also curious to see if the populist movements witnessed in the US, Great Britain and Italy in 2016 extends to other countries in 2017 and, if so, what implications might be felt as a result within our increasingly intertwined global economic and investment framework.

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