President Donald Trump gave a lot to U.S. stocks since the election in terms of the Trump rally and took the Dow Jones Industrial Average to the 20,000 mark for the first time in history. His pledges of higher fiscal spending and tax cuts were the main tailwinds.
Since the election on November 8, the S&P 500-based ETF (NYSEARCA:SPY) has added about 7%, the Dow Jones-based fund (NYSEARCA:DIA) has advanced about 9.4%, the Nasdaq-100 based product (NASDAQ:QQQ) has tacked on 7.4% gains while the small-cap index, the iShares Russell 2000 (NYSEARCA:IWM) has returned about 14.6% till January 27, 2017.
Trump took to Twitter earlier to spread his economic ideas, but as soon as he was sworn in on January 20, he started implementing some of the measures for real.
Among his desired steps, plans to impose a 20% border tax on Mexican imports and the immigration ban on Muslims appear to be some of the most significant. Investors should note that though Trump's proposed policies should do a lot of good to several asset classes and related ETFs, not all corners are fortunate enough to hold the Trump card. Rather these ETFs may fall flat in the coming days. Let's tell you why.
Will Trump's Border Tax Weigh on Consumer ETFs?
Mexico has been a Trump-unfriendly investment due to his plans of building a wall along the border as part of his immigration strategy and making Mexico pay for it. President Donald Trump is now mulling over a 20% tax on imports from Mexico to pay for a southern border wall, though other options are also being considered.
Now, companies that produce U.S. consumer goods in Mexico would certainly pass on an import tax to American consumers. Prices of many goods that are fully or partially foreign-built are likely to go up. Especially costs of Corona, tequila or margaritas will likely escalate.
Several restaurant companies serve beer and use avocados for their dishes. Only a third of all avocados consumed by Americans are home-grown and the rest are imported. And over nine of every 10 imported avocados are from Mexico, as per the source.
In this regard, we would like to mention that stocks like the huge Mexican Avocado user Chipotle Mexican Grill, Inc. (NYSE:CMG) and Corona-maker Constellation Brands Inc. (NYSE:STZ) may be at gunpoint if Trump's border tax gets effected.
So, one can easily understand the pocket pinch to restaurateurs or beer makers who got their ingredients shipped from Mexico. And these higher commodity prices are most likely to be transferred to consumers' wallets.
So, Consumer ETFs like the iShares U.S. Consumer Goods ETF (NYSEARCA:IYK), the Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP), the iShares U.S. Consumer Services ETF (NYSEARCA:IYC) and restaurant ETF, the USCF Restaurant Leaders Fund (NYSEARCA:MENU) will come under pressure.
And needless to say, Mexico ETFs like the iShares MSCI Mexico Capped (NYSEARCA:EWW) will also feel the pinch of border tax. Nevertheless, investors should note that considering a border tax and that implementation of the same is not an easy task, as there are several roadblocks including the NAFTA agreement.
The agreement had tied up the U.S., Canada and Mexico for more than two decades. The deal permitted manufacturers and farmers to do seamless business. So, Trump has to first come out of this treaty before imposing such taxes on Mexico.
Embargo on Immigration
Global airlines are likely to have a hard time with the latest ban on travels by President Donald Trump's executive order keeping visitors away from seven Muslim-dominated nations. These states are Iraq, Syria, Iran, Libya, Somalia, Sudan and Yemen and the number of people would amount to about 2018 million. But the executive order indicated that the ban could broaden up in the days to come. The move is intended to obstruct terrorism in the U.S.
The order is likely to hurt airlines on both a short term and a long-term basis. The short-term impact will be a scaling up of costs as airlines will now have to refund for their customers' planned travel to the U.S. or accommodate them in other ways. And over the long term, airlines will likely lose a customer base.
The pure-play aviation ETF U.S. Global Jets ETF (NYSEARCA:JETS) will likely be under stress while stocks like Delta Air Lines Inc. (NYSE:DAL), United Continental Holdings (NYSE:UAL) and JetBlue Airways Corporation (NASDAQ:JBLU) may be hit hard.
Apart from airlines, some tech companies that employ foreign workers may find them stuck abroad. So, difficult times may be in the offing for tech ETFs like the Technology Select Sector SPDR ETF (NYSEARCA:XLK) and stocks like Apple Inc. (NASDAQ:AAPL).