Trump 2.0: This Sector May See A Big Performance Boost

Key Points

• The tech, consumer discretionary, and healthcare sectors saw the best performance under Trump's first term.
• Contrary to the opinions of many, one of Trump's most talked-about sectors performed light-years better under Biden.
• However, there is reason to believe that one favored sector could live up to expectations in Trump's second term.

Now that Donald Trump is starting his second term as President, reviewing sector performance during his first term is an interesting exercise. Some of the results may come as a surprise. Additionally, there is reason to believe that one sector that underperformed in Trump 1.0 could perform much better under Trump 2.0.

Below, I’ll provide a breakdown of the best and worst-performing sectors in Trump’s first term and see how they compare to the Biden administration. I'll also share where things could be different this time. I will suggest investments that could benefit significantly. Returns will use the State Street SPDR sector ETFs as their basis and range from the president's first day in office to his last day.

Trump 1.0: Strong Overall Performance, Tech, and Consumer Discretionary Shine

In Trump’s first term, the S&P 500 returned an impressive 80%, solidly beating out the also strong 65% return during the Biden administration. Performance diverges significantly, however, when looking at individual sectors. The administration presided over a massive run-up in the information technology sector. The S&P 500 tech sector gained 174% under Trump and 84% under Biden. The second-best performing sector under Trump was consumer discretionary, returning 109%. The sector managed only a 38% return under Biden. The third-best was health care, with an 81% return under Trump, compared to 26% under Biden.

The most surprising difference in performance between these two presidents was in the energy sector. The sector provided a total return of -29% under Trump while returning 151% under Biden. This challenged the idea that Trump's support for fossil fuels would boost energy while Biden's focus on renewables would harm it. Oil and gas prices soared, partially due to the Russian invasion of Ukraine. This helped energy companies' profits reach new highs. To this day, the price of West Texas Intermediate (WTI) Crude Oil is nearly 40% higher than when Biden took office. Two other sectors, financials and industrials, also outperformed significantly under Biden compared to Trump.

Analyzing Sectors Expected to Benefit From Trump 2.0

At this point, many believe that those sectors that underperformed in Trump's first term will benefit this time around, including energy and financials. The rationale stems largely from the view that Trump will have a staunchly deregulatory stance toward these sectors. His “Drill, baby, drill” sentiment and recent executive orders show a desire to increase energy production. Additionally, less regulation could raise oil companies' margins by cutting compliance costs.

However, the success of oil and gas stocks will still mostly revolve around oil and gas prices. This is something that the president has little control over, and increasing supply would likely lower prices. Trump tariffs could also hurt refining companies that rely on foreign oil to turn into gasoline. Overall, determining the true impact of a president on this sector is challenging.

An area where Trump may be able to have a significantly larger effect is financials. Many expect merger and acquisition (M&A) activity to increase substantially under Trump. Multiple bank executives have already commented on the increased confidence in the business environment. This is already driving banks to see rapidly growing revenues in their investment banking divisions. When there is more M&A activity for these banks to advise on, fee revenues rise.

Furthermore, many believe Trump could abolish the blanket capital requirement increases proposed in the Basel III Endgame regulation. Basel III Endgame is one of the most significant banking regulations since the Financial Crisis. A notable reduction in the scope of the regulation would be a boon to the industry. Lastly, many financial names that operate in the crypto space will likely benefit from Trump’s embrace of digital assets.

Funds That Could Perform Well Under Trump

The Trump administration could significantly benefit the Financial Select Sector SPDR Fund NYSEARCA: XLF and the Invesco KBW Bank ETF NASDAQ: KBWB. However, I won’t go as far as to say that they will outperform all other sectors. The best-performing sectors will almost certainly result from circumstances out of the President's control.

Additionally, I believe the Technology Select Sector SPDR Fund NYSEARCA: XLK remains a strong play. Recent news surrounding DeepSeek sent many AI-driven stocks plummeting while others rose. The implications of DeepSeek don’t doom the tech sector as a whole by any means, but there will be winners and losers. This makes the diversification in the tech sector that XLK provides valuable going forward.