Does the post-election run in Tesla, anything crypto-related (including Coinbase and similar brokerages, effectively proxies), Truth Social (Mr Trump’s social media “alternative” to Twitter/X), and the mid-size US bank ETFs (like KRE) really make sense? Actually, the fact that these stocks/assets have appreciated following the election results isn’t surprising at all given President-elect Trump’s stated policies during his campaign. However, four days into this run, it is certainly starting to feel well over-baked. Why have these stocks/assets in particular been running so fast since Mr Trump won the election?
Tesla (TSLA): Elon Musk and president-elect Trump seem to be best mates, and Tesla should benefit in spite of Mr Trump’s non-supportive stance on ESG, including EVs. TSLA shares are up 39% since the day before the election, adding $316 billion of market value and $65 billion to Mr Musk’s net worth in only four days.
Cryptocurrencies (and proxies): President-elect Trump became an ardent supporter of cryptocurrencies during the summer as he was on the campaign trail, perhaps reflecting the fact that two of his sons – Donald Trump Jr and Eric Trump – have set up a cryptocurrency platform World Liberty Financial. During Trump 1.0, Mr Trump clearly was not a fan of cryptocurrency, and in fact called Bitcoin a “scam” shortly after he left office on Fox Business News (see Fox Business News here from August 31, 2021). Nowhere has the post-election run been more obvious that Bitcoin, which is up over 26% since the day before the election, rapidly closing in on $90,000. Crypto brokerages like Coinbase (COIN) have also run significantly in the last four days, even more than TSLA.
Truth Social: Truth Social (DJT) is Mr Trump’s social media company, which went public via a merger into Digital World Acquisition Corp, a SPAC, in March 2024. President-elect Trump owns 57% of the company. Trump Media, as it’s called, has a market cap of $7.2 billion, in spite of having sales of a mere $1 million and a net loss of $19.2 million in the quarter ended Sept 30, 2024. The stock bounces around a lot, but gained momentum leading up to the election as a de facto meme-like stock that was a proxy for Mr Trump’s election odds. Don’t even try to rationalise the value, which is on planet Mars.
Regional US mid-sized banks: KRE is a State Street-sponsored ETF fund focused on US medium-sized banks, and tracks the S&P Regional Banks Select Index. KBWR is a similar ETF sponsored by Invesco. Mr Trump’s “regulation lite” approach is expected to benefit US banks by greatly reducing regulatory pressure on financial institutions, especially with respect to capital adequacy.
I suppose I would be remiss not to mention the US Dollar, but it is running for reasons that are not positive for Mr Trump’s plans. Investors are piling into the US Dollar and fleeing out of US Treasuries expecting Mr Trump’s inflationary policies to push yields higher in the bond market as US debt balloons. Mr. Trump’s promises of broad tariffs on imports and tax cuts for nearly everyone have stirred, and will continue to stir, the animal spirits of bond vigilantes. Higher interest rates going forward are expected to extract a cost on both consumers and the US government (in terms of higher borrowing costs on ever-growing US debt).
Using prices at Monday’s close (November 11th), here’s the four day performance of the beneficiaries of the so-called “Trump trade”:
Some of these trades have generated enormous profits for those in and around Mr Trump. If this makes you a bit uncomfortable, it is entirely understandable given the murky overlap of politics and finance. However, the point of this article is not to look at the ethics of this, but rather to ask “have these stocks/assets run too far too fast”? My instinct is a resounding “yes”, but perhaps that’s just FOMO talking. Having said that, I believe the following.
TSLA is well over its skis as far as valuation. I heard somewhere yesterday that the market cap of TSLA is larger than the next 10 largest global automotive manufacturers combined (not fact checked). Toyota – the world’s largest automotive company by vehicles produced – manufactured nearly six times as many vehicles as Tesla in 2023, yet has a market cap that is less than 25% of Tesla’s. Go figure. I know the Tesla-lovers’ narrative – TSLA is special because it is a tech company, not an automotive company; it is about to pioneer self-driving taxis; etc. But this is all part of the spin, and all old news. Having said that, we have been here before with Tesla on several occasions, and Tesla / Elon Musk diehards keep buying and holding the stock without much consideration of fundamental value. These investors are not stupid, because they can smell a hot momentum stock a mile away, and Tesla is arguably the mother of all momentum plays. Buyer beware, and shorts beware! It’s so tempting to play this from the short side, but going against TSLA has often proven to be very painful for those investors that tried.
DJT has not has the run up in price like TSLA since the election, but it is far over-valued no matter how you look at it. Throughout the election campaign, the stock marched to its own beat, reflecting the ebbs and flows of the likelihood of Mr Trump regaining office. This is nothing more than a meme stock mimicking support for Mr Trump. You will bang your head on the wall if you try to justify how a company with $1 million of quarterly sales and massive bottom-line losses can be worth over $7 billion in market cap. I pity unsophisticated retail investors investing in this pile of dung, because this story is unlikely to end well…..unless Mr Musk’s X makes a bid. Never say never!
I do not understand at all what makes BTC go up or down, so am not qualified to explain its movements. Proxy cryptocurrency brokerages like COIN seem well over-baked to me, too, but I am saying this as an investor that has owned both Bitcoin and Coinbase, and rather remarkably, managed to lose money on both. This one is for the crypto pundits, but it’s hard to believe that COIN is up 67% and BTC 28% in four trading sessions. This is not for me!
The regional bank indices are the easiest for me to understand, because mid-tier US banks were punished so badly at and following the failure of SVB and have struggled since to fully recover. These stocks arguably still have gas in their tanks given the lows a couple of years ago, with Mr Trump’s “reg-lite” policies boosting their shares further. Nonetheless, banking is a rather mundane, slow growth business, so the magnitude of gains in the last four days is difficult for me to fully wrap my head around.
Of course, the other side of the “Trump trade” are sectors and stocks that have been hammered, which includes nearly anything interest-rate sensitive like utilities and real estate companies. To say holders of intermediate and long-term bonds have been hammered is also an understatement, as previously mentioned.
It has not all been a one way street, but if you were long the names I discussed in this article on election day or well before, you have done very, very well! But one has to ask, “how much longer can this continue?”
Xcellant Wade /Nancy/Bill’s buddy