According to political pollsters, last month’s presidential debate has increased the odds of a republican victory this November. Not just for the next occupant of the White House, but for many down ballot candidates as well.

You might think that development has Wall Street loading up on so-called “Trump trades.” At the top of that list are defense contractors, who traditionally get a bigger share of the federal budget when the GOP is in charge.

Oil companies are also high on that list. They expect to see more deregulation under a republican administration. Especially in Texas, where the unofficial state motto is “Drill, baby drill!”

Real estate developers are also expecting to thrive under Trump. After all, he is one of their own and has promised to cut interest rates aggressively if he wins.

Those are reasonable assumptions and may eventually prove true. But in the immediate aftermath of that debate, none of those sectors gained ground.

One week after the debate, the iShares U.S. Aerospace & Defense ETF (ITA) was no higher than where it was the day before it took place. Its top three holdings are GE Aerospace (NYSE: GE), RTX Corp (NYSE: RTX), and Boeing (NYSE: BA).

The same can be said for the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Its top three holdings are Diamondback Energy (NSDQ: FANG), Permian Resources (NYSE: PR), and Matador Resources (NYSE: MTDR).

The SPDR S&P Homebuilders ETF (XHB) fell 1% the week after the debate. Its top three holdings are KB Home (NYSE: KBH), Allegion PLC (NYSE: ALLE), and Lennox International (NYSE: LII).

Inescapable Facts

To be clear, this is not intended as political commentary. Regardless of where you fall on the spectrum, there are two inescapable facts that must be acknowledged:

• There will be a general election this November
• The winners will have a lot of say over how our tax dollars are spent.

Read This Article: Show Me The Money: Markets Shrug Off Political Violence

We just witnessed a vivid illustration of that over the past three years. The Infrastructure Investment and Jobs Act (IIJA) was enacted in November 2021.

Two months later, I identified heavy equipment manufacture Caterpillar (NYSE: CAT) as one of “Our Three Favorite High Yielders for 2022.” Despite the bill’s passage, infrastructure stocks were performing about the same as the overall stock market at that time.

I believed Caterpillar was ideally suited to capitalize on increased infrastructure spending. I said then, “I expect CAT to appreciate strongly during the second half of this year.”

And appreciate strongly, it did. Not just during the fourth quarter of 2022, but all of 2023 and the first quarter of this year, too. Over the past four years, CAT has appreciated more than 150%.

However, Caterpillar was an outlier. During that same span, the iShares U.S. Infrastructure ETF (IFRA) performed about the same as the SPDR S&P 500 ETF Trust (SPY).

That’s because the money managers on Wall Street don’t buy sectors; they buy companies. And they tend to load up on the companies they believe will get the lion’s share of increased spending within those sectors.

That explains why super high-speed computer processor manufacturer NVIDIA (NSDQ: NVDA) is up 10x over the past two years. It is widely regarded as the primary beneficiary of increased spending on artificial intelligence (AI).

Erroneous Conclusions

A lot of things can change in the months to come. Betting on the outcome of the general election is premature.

Also, it is difficult to accurately predict what will happen after an election. There are too many exogenous factors that can interfere with political agendas.

During the past four years, the global economy has strained under the weight of the coronavirus pandemic. Factories in China shut down, destabilizing the global supply chain. Money that might otherwise been spent on growing the economy was redirected into developing vaccines to save lives.

At the same time, Russia’s invasion of Ukraine two years ago triggered economic sanctions that temporarily roiled the energy markets. The price of oil soared, generating record profits for most oil producers.

I have no idea what the next four years have in store for the global economy. At least, not specifically. I have a general idea of what the major macroeconomic themes will be, but don’t know the details.

The money managers on Wall Street aren’t loading up on “Trump trades” for the same reason. In the final analysis, expectations for future profitability are what matter most.

That is why I mostly ignore politics when making portfolio decisions. I added Caterpillar to the Personal Finance Growth Portfolio four years ago because I felt it was fundamentally undervalued. Likewise, I added NVIDIA two years ago for a similar reason.

Likewise, I believe there are individual stocks in the energy sector that could take off next year. That’s not my area of expertise, but it is for my colleague Robert Raper.

Robert specializes in the energy sector. He’s also an income investing legend. He’s the chief investment strategist of Utility Forecaster, Income Forecaster, and Rapier’s Income Accelerator.

Robert wields a wide body of knowledge across various industries. Robert is locked in on artificial intelligence (AI) right now because of the incredible income opportunities he has found there. From energy to utilities to AI, Robert taps the right markets at the right time. To learn more, click here.