Donald Trump U.S Sector Performance Analysis
In this analysis, we will examine the historical total return performance of U.S. sectors during the most recent Trump Administration. To provide an accurate assessment, we will exclude the COVID-19-induced market drawdown, considered an outlier event within the S&P 500, spanning from February 20, 2020, to August 10, 2020.
Total Return:
The bar chart above illustrates the total return, inclusive of dividends, for each sector during Trump’s previous administration. Over the same period, the S&P 500 achieved an 84.5% return, with only the consumer discretionary and technology sectors outperforming on a total return basis.
As shown in the chart above, all sectors delivered positive average annualized returns except for the energy sector.
Risk-Adjusted Returns:
The chart above shows the Sharpe ratio for each sector, assuming a risk-free rate of 2.2% during this period. The S&P 500 performed exceptionally well, achieving a Sharpe ratio of 1.15. This indicates that for every 1% of risk or uncertainty assumed by the investor, the market rewarded the investor with a 1.15% excess return. During this timeframe, only the consumer discretionary and technology sectors managed to outperform the S&P 500.
However, as shown in the chart above, when equalizing all assets in terms of risk (Beta), Utilities were the best performer, with an annualized alpha of 11%. In addition, tech, real estate, healthcare, and consumer discretionary also managed to outperform on a risk-adjusted basis.
Conclusion:
From this analysis, it is clear that technology, consumer discretionary, healthcare, and utilities stand out as clear winners compared to other industries. However, it is difficult to attribute this performance solely to the Trump administration, as many third-party effects have influenced these outcomes. Investors should focus on how the current administration can impact inflation and the labour market outlook, as these will drive growth and sector performance.
As shown in the chart above, during the previous Trump administration, inflation was around 2%, interest rates were lower, and inflation expectations were well anchored. This is no longer the case. If we were to see an inflationary period with strong growth, we can expect materials and energy to outperform more interest rate-sensitive sectors such as technology and utilities.
Disclaimer:
Past performance does not guarantee future results, which may vary. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Copyright Alpha Rho Technologies LLC. All rights reserved.