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Donald Trump managed to secure a second term in the White House on Tuesday. Along with it, the markets quickly scrambled to position themselves for his economic agenda.

Trump, in his first term, showed that he was going to be a business-friendly leader. He passed the Tax Cuts & Jobs Act of 2017, which led to reductions in tax burdens for both individuals and corporations, which saw the corporate tax rate reduced from 35% to 21%. He wanted to make the United States more competitive globally through a trade war policy, mostly targeted at China. He also sought to roll back regulations that were deemed unfair to businesses.

It worked too. While the tariff policy was very on-and-off, the corporate tax cuts drove a big earnings boost for big companies and, as a result, their stock prices. You could argue that such a significant cut to the corporate tax rate started us down the path of larger and larger deficits, it clearly played out well for investors.

We’re at that point again.

Wednesday’s trading showed that the markets fully expect a return to those business-friendly policies. The equity markets staged a strong rally, but there were clear winners and losers within. Those that stood to benefit from Trump policies outperformed, while those that were nowhere on his priority list got hit hard.

I argued on Twitter/X that the Wednesday rally could reverse by the end of the week if we end up with a split Congress.

But it’s clear that the markets like what they see so far and it’s likely that we could see another extended rally for stocks that takes us through the end of 2025. 20%+ rallies haven’t been that unusual recently post-election and the package of policies supported by Trump means another one could be ahead.

In my opinion, there are a few sectors & themes positioned to be clear winners in the next Trump presidency and a few that could fall very out of favor.

Trump Trade Winners

iShares Bitcoin ETF (IBIT)

Trump has pretty actively stated his support for the cryptocurrency markets and bitcoin could be on its way to becoming much more mainstream in the coming years.

Bitcoin passed the $76,000 mark on Wednesday and that could just be a speed bump on the way towards $100,000. With Elon Musk on board as, minimally, an advisor and possibility a member of Trump’s cabinet, it’s likely that crypto never strays too far from the radar. With more than a dozen bitcoin and ethereum ETFs now available for investors, it’s going to be easier than ever for regular folks to jump on board.

The fact that IBIT traded more than triple its normal volume on Wednesday proves that interest is high.

Schwab U.S. Small Cap ETF (SCHA)

The behavior of small-caps has been unusual over the past several months. In a vacuum, the idea of lower interest rates and monetary easing should be particularly beneficial to this group because they’re more reliant on debt to fuel growth. But outside of a strong Fed-fueled rally about a year ago and the historic outperformance in July when it seemed like the Fed might have to cut more aggressively, small-caps just haven’t gotten the big boost I would have expected in a soft landing scenario.

That changed on Wednesday. The Russell 2000 outperformed the S&P 500 by more than 3% and in the process showed that this might finally be the launching point.

Trump policies clearly favor less regulation, lower taxes and a strong pro-business environment. That’s an incredible trio of tailwinds that would be in addition to the Fed likely continuing to loosen in the background. After Trump was elected in 2016, small-caps got off to a similarly hot start and continued to outperform the S&P 500 over the next year and beyond.

I think conditions are lining up for a repeat in 2024-2025.

Tema American Reshoring ETF (RSHO)

This one should be fairly self-explanatory. Trump has made bringing American business back home a top priority. He implemented tariffs on foreign manufacturers, especially China, but it was relatively uneven. Stocks experienced periods of volatility whenever this re-entered the news cycle, but it never seemed to make major waves in the economy.

It could be a different story this time around. Trump has threatened flat 10-20% tariffs on all foreign goods and tariffs of 60-100% on Chinese goods. The goal, of course, is to eliminate the reliance on overseas manufacturers in order to bring business and jobs back home.

RSHO is approximately 70% industrial stocks, 18% materials and minor allocations elsewhere, so this will be heavily dependent on the health of the manufacturing sector. This ETF probably only works if we see a rebound in manufacturing more broadly. The tariffs could have their desired effect, but they could also drive prices endlessly higher and end up doing more harm than good.

iShares U.S. Manufacturing ETF (MADE)

This is a new fund from iShares that could be launching just at the right time. The investment case is pretty similar to that of RSHO. While that one focuses on companies that have plans to bring international manufacturing activity back to the United States, MADE focuses on companies domiciled in the U.S. regardless of their standing internationally.

It’s perhaps a better way to add exposure to the sector more broadly instead of just focusing on those companies moving back home. In either situation, it’s way to target a very narrow segment of the global economy that Trump will appear to try to give every advantage to succeed.

Invesco KBW Bank ETF (KBWB)

Trump has made it a focus of his to undo any kind of regulation he sees as unwieldy to business or the economy, especially if it’s tied to one of his predecessors. The financial sector became much more heavily regulated in the aftermath of the financial crisis, but it received a renewed focus during the regional banking crisis in 2023. With the commercial real estate sector still looking like it’s in some trouble, bank liquidity and capitalization has been in focus.

If regulation is on the chopping block, expect the banking sector to get a lot of attention. The M&A environment has slowly begun to improve and the big banks showed last quarter that they’re ramping up activity again. Trump would love to make it easier for banks to get more involved in this and other forms of lending because that directly helps drive economic growth.

VanEck Oil Services ETF (OIH)

The Biden administration was focused on climate change initiatives and the development of green energy. Trump’s favorite rallying cry is “drill, drill, drill”. It’s pretty easy where his priorities lie.

The problem here is that oil demand still isn’t where it needs to be. OPEC again delayed a planned production hike because prices weren’t where they needed to be to warrant it. China could provide some of that demand, but so far they haven’t even released any details around a proposed stimulus plan (although that could come this week) and measures so far have been aimed at lowering rates, not igniting demand.

If energy demand picks back up and Trump follows through on his promise to refocus on drilling, oil servicers would be in a prime position to benefit.

Trump Trade Losers

iShares Global Clean Energy ETF (ICLN)

Clean energy ETFs have been among the worst performers of 2024 and that was even before Trump won the election. There has been a heavy push by Democrats for green energy solutions, but a split Congress has prevented much progress from being made.

I suppose it goes without saying that clean energy initiatives won’t be anywhere near the top of the agenda for the new administration. The Green New Deal was going to be a tough sell with its steep price tag even if Democrats had control of the necessary chambers. Now, they won’t have the White House or the Senate and may not have the House either when all is said and done.

Any major clean energy initiatives are likely going to be years away now and that makes them a poor investing opportunity.

SonicShares Global Shipping ETF (BOAT)

This is an extension of the protectionist trade agenda. If Trump is going to place punitive tariffs on any imports, especially those from China, we’re likely to see global shipping volumes decline significantly. In fact, there are already stories of companies working with suppliers to accelerate delivery timelines in order to get shipments before any tariffs get implemented.

iShares 20+ Year Treasury Bond ETF (TLT)

Long-term Treasuries have been one of the market’s ugliest trades for a while now and it’s really counterintuitive. Treasury yields usually drop in the aftermath of the Fed’s first rate cut, but the 10-year yield is now more than 80 basis points above its September low.

While there are some possible explanations, such as a lack of liquidity and an oversupply of issuance, but I think inflation risk is the primary culprit. The Fed has already begun lowering rates, yet has insinuated that QE might be ready to restart. There’s $600 billion of planned Treasury issuance in Q4. Trump is likely to enact tariffs and tax cuts relatively quickly in the new term. All of these factors are inflationary and the markets are clearly getting concerned about the lack of fiscal responsibility in Washington.

These factors are likely behind this year’s gold rally and TIPS are starting to outperform other bond issues. It stands to reason that higher yields on the long end of the Treasury curve are experiencing a similar reaction.

Re-inflation is one of the biggest risks to the economy over the next 12 months and I think the fixed income market is starting to price that in.

Conclusion

Trump’s business-friendly economic policies coupled with increased support from the Fed could create a perfect storm of conditions for risk assets. That’s been the driver behind Wednesday’s rally. In the short-term, I think there’s unquestioned support for higher stock prices, but the longer-term picture is muddier. If Trump’s policies ultimately turn inflationary, all of those gains could quickly be reversed.

There will be some clear winners and losers in a second Trump term. We’re already seeing some of that play out.