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Where Will Commodities Head during Trump’s Term?

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Impact on commodities

Donald Trump’s administration could invest significantly in infrastructure. A rise in infrastructure investment could boost infrastructure commodities like steel (SLX). However, Trump’s energy policy (XLE) could pressure energy commodities such as coal (KOL), crude oil (USO) (UCO), and natural gas (UNG) (BOIL). His plan to raise the production of coal, crude oil, and natural gas could lead to higher supplies. Both crude oil and natural gas markets are currently experiencing supply glut issues, which could adversely impact crude oil and natural gas prices.

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Inflation expectations

On November 9, 2016, the ten-year break-even inflation rate rose after Donald Trump’s win. The widening of the spread indicates a possible rise in inflation. Energy and metal commodities are one of the major inflation drivers in the US economy (QQQ) (SPY).

How stocks could be impacted

Donald Trump’s policies are aimed at strengthening the job markets in the United States (VFINX) (IVV). The broader market index such as the S&P 500 Index (SPY) could be positively impacted by this development, while the energy commodities could witness weaknesses under Trump’s regime. However, higher production could be translated into higher revenues for energy and power stocks. Consumer spending could be a boost for the consumer discretionary (XLY), personal technology, and other sectors. The possible abolition of the Dodd-Frank Wall Street Reform and Consumer Protection Act could be a big boost for financial stocks (XLF), which we have discussed in the above part of this series.

Will commodities outperform equities?

Donald Trump’s policies could be a boost for specific sectors, while commodity sectors (DBC) could be adversely impacted. Moreover, the policies could further weaken the underlying fundamentals for energy commodities.

In the next part of this series, we will analyze fund managers’ prospectives on the election results.

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