Market Smiles on New Administration but Watch EV, Pharma Closely
Trump's return sees broad-based rally, but here's what to watch for the electric vehicle and automotive makers and drugmakers.
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The first full day of the new administration got off to a good start for equity investors. The major indexes all saw solid rallies during Tuesday. The Dow was up nearly 540 points while the small cap Russell 2000 rose over 1.8%. The S&P 500 and Nasdaq lagged but posted solid gains on the day. Oil fell over 2% and there was a slight decline in the yield on the 10-Year Treasury. All in all, a promising beginning for investors as a new regime takes charge.
As expected, the new POTUS issued scores of executive orders. Most of these were around immigration and energy policies. I do find it somewhat ironic that at around the same time electric vehicle mandates are being revoked, that Canoo GOEV joined EV brethren Lordstown RIDE and Proterra PTRA in bankruptcy. Also, as the new administration at least temporarily suspended new wind energy permitting and leases, Danish offshore wind developer Orsted revealed impairment charges that exceeded expectations. Both industries are likely to have significant "transition" challenges under the new administration.
On the flip side, American car manufacturers should benefit from a federal government not pushing for half of all car manufacturing consisting of electric vehicles by 2030. General Motors GM, which also got a nice upgrade from Deutsche Bank, was up nearly 6% in trading on Tuesday. Ford F also rose 2.4% on the day. The market was relieved that the new administration did not implement tariffs on its first full day in office. But this is likely a temporary reprieve and this will be something the market will be monitoring very carefully in the months ahead.
The new administration also called on all federal employees to return to the office and ending Covid-era telework policies. Major banks like JPMorgan Chase & Co. JPM have recently done the same. I will be most interested in seeing what impact this has on the office vacancy rate in major cities.
I do think investors and economic forecasters will have a much better idea of what the permanent virtual workforce looks like by the end of 2025. Will this have any significant impact on the continued deterioration of office-property secured commercial real estate loans in regard to increasing delinquency and default rates? That is yet to be determined, but it is likely to be a marginal positive at best.
Finally, I am intrigued by what the potential appointment of RFK Jr. will mean for the pharma industry. Will this mean the end of direct-to-consumer advertising for the industry? This would bring the U.S. in line with the rest of the world where only New Zealand allows this practice. If so, what impact will this have on pharma sales and on media companies given the industry is such a big advertiser?
Investors will have to keep a close eye on D.C. over the coming weeks. It is hard to remember the last time an incoming administration promised so much change to the status quo.
At the time of publication, Jensen was long F.
