How fortunes will be earned and retirement lost in the next 4 years

How are we doing with the stock market, my colleague?

More importantly, should we have an opinion about the market as a whole at all? I don’t think so. Trump 2.0 will create a “market barbell” of big winners and sad losers. Let’s focus on the dividend payers that will be driven higher – and steps over the stragglers.

There are some dandy dividends ready to shoot higher. Today, they sit in the bargain bin thanks to investors’ reservations about the Federal Reserve. When Chairman Jay Powell took the stage in December, he delivered a sobering discourse to investors: Don’t expect as many rate cuts as you had hoped for.

The lecture was not well received and really scared the crowd. Fear is widespread according to CNN’s Fear and Greed Index (FGI):

Here at Contrarian Outlook we tend to fat FGI. When the emotions run scared, we buy the offers from the weak hands.

The always have a reason to sell low. Admittedly, the narrative usually crumbles in retrospect with the passage of time. But the vanilla financial websites must publish some reason or another that the shares have fallen today.

These days it’s the hawkish Fed. But is this really bad news? The 10-year Treasury yield has (paradoxically) been rising with each Fed rate hike cut. It is not supposed to happen.

It is the bond market screaming at Jay that these cuts are not needed. The economy is fine. It absorbed the interest rate hikes and we have seen neither a hard nor a safe landing. In fact, we have seen no economic landing at all!

Last Friday’s strong jobs report showed that. The unemployment rate fell again to 4.1 per cent.

Remember the pullback in August when pundits and Fed officials alike were sure we were heading into a recession? This triggered the “Taylor rule” – i.e. a formula supposed to predict a recession. Last summer, Fed members seemed to hold the Taylor rule as gospel.

However, the Taylor rule is newer than the gospel. It has been around since… 1992. It also surprised me that it is being talked about as if it was handed down in biblical times. I’m all for most ’90s trend comebacks, but the Taylor rule should have stayed.

So the economy is humming along and the Fed is finally admitting it. Short-term interest rates will remain “higher for longer.” If this helps “contain” the 10-year yield below 5%, then I’m all for it. Higher short-term interest rates should prevent overheating of the economy. (The path of constant rate cuts combined with “no landing” would not do.)

Which brings us to President-elect Trump, who takes office in five days. The most Dow-friendly president in recent history takes office with a healthy dose of fear in the markets. That’s it tempting to buy the S&P 500 or the Dow Jones Industrial Average and be done with it – but we can do better.

I’ve run the numbers on how certain stocks performed under Trump 1.0 for clues as to how investment history may “rhyme” in the next four years. There are a few surprises not appreciated by the mainstream narrative.

Trump 1.0: Health care stocks largely Overall

First, conventional wisdom says to dump healthcare stocks. Robert F. Kennedy Jr. shall head the Department of Health and Human Services. Sell ​​them all, right?

Wrong! The five best stocks of this discounted 14% payer the dividend fund returned 126%, 141%, 179%, 227% and over 1,000% during Trump’s first administration, benefiting from lower regulation and a strong economy:

Yet BlackRock Health Sciences Term Trust (BMEZ) the fund sits at an 11% discount to its net asset value (NAV) due to fears that RFK Jr. will wipe out the entire sector.

Trump 1.0: Bullish for Blue Chip Healthcare

Let’s take a deep breath. RFK does not dictate what the Federal Drug Administration (FDA) does, which traditionally operates on its own independent of politics. Plus we have sector blue chips like UnitedHealth Group (UNH) and Abbott Laboratories (ABT) which will likely roll merrily along as they did in Trump’s first term. UNH and ABT sailed 135% and 199%. Their business was good then and they remain good now!

Trump 1.0: The Bear Market for Energy was underway

What about energy? Crude oil rose last Friday on the latest round of US sanctions against Russia. Is reduced supply combined with a strong economy bullish for energy, or is Trump’s “drill baby, drill” mantra ultimately putting a lid on prices? I’ve heard from attentive readers who are concerned that Trump “drilled so much in the first term that he tanked oil.”

It’s true that energy prices fell all four Trump years, but the bear market for oil started in 2014—two years before 1.0 – triggered by the US shale oil supply boom that began years earlier. So when Trump was inaugurated in 2017, these trends were already underway. So I won’t draw many conclusions from these two ugly charts, which show two of our favorite yield growers in the energy patch, EOG Resources (EOG) and EQT Corp (EQT):

We must deal with public contractors on a case-by-case basis. The new Department of Government Efficiency (DOGE), led by Elon Musk and Vivek Ramaswamy, seeks to eliminate $500 billion in spending. This is a potential headwind for federally operated gravy trains.

It is possible that we will also see a “peace dividend”. Trump can strike a deal with Russia to end the war in Ukraine or with China to ease tensions in the Pacific. Given these headwinds, contractors are now generally in “stay away” territory.

One exception I make is for General Dynamics (GD)which is a backdoor play on AI automation at the federal government level. GD fell flat under Trump 1.0, but we have higher expectations this time given the AI ​​angle.

AI plays a central role in General Dynamics IT strategy. It has implemented a Luna AI system that uses machine learning to extract insights from large amounts of data. Luna is designed specifically for government and defense applications. The “Luna promise” is evident in GD’s new orders and total sales inventory.

Brett Owens is Chief Investment Strategist for Contrarian Outlook. For more great income ideas, get your free copy of his latest special report: Your early retirement portfolio: Huge dividends – every month – forever.

Disclosure: none