Trump Election Win Puts Energy ETFs in the Spotlight

The promotion of domestic energy production could lower energy prices and pinch producers.

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Jeff_Benjamin
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Wealth Management Editor
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Reviewed by: etf.com Staff
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Edited by: Kiran Aditham

Beyond the initial market pop following the reelection of Donald Trump last week, the energy sector uniquely stands out as a category that could ultimately benefit consumers but hurt investors.

It boils down the “drill baby drill” mantra that Trump carried over from his first presidential term that implies lower energy prices through increased domestic production.

For ETF investors, the energy sector was among the biggest post-election movers with bellwethers like the Energy Select Sector SPDR Fund (XLE) and the Vanguard Energy ETF (VDE) up nearly 5% over the past week.

But with the dust starting to settle, financial advisors and market watchers are considering ways to hedge the energy sector in client portfolios.

“As a standalone, more production generally means lower prices and that’s deflationary,” said Chuck Failla, principal at Sovereign Financial Group.

“However, there seem to be many, many moving parts pulling and pushing many different levers,” he added. “So, at this point, I think it’s too early to tell if the net effect of all the changes will be inflationary or disinflationary.”

Energy ETFs Brace for Trump Policies

While lower energy prices would help tamp down inflation and potentially offset any inflationary policies coming out of a Trump administration, the investment strategy presents a vaguer picture.

“Energy stocks have soared post-election on the thesis that less regulation and stronger growth will increase profits and demand,” said Paul Schatz, president of Heritage Capital.

“However, ‘drill baby drill,’ which will be good for the sector and energy independence also means more supply on the market, and more supply usually leads to lower prices which are not good for the stocks,” he added. “But the energy sector was so beaten down that the rally still has legs.”

Joy Yang, head of Index Product Management at MarketVector Indexes, said the outlook for the energy sector, from an investing perspective, is getting complicated.

“If you look at some of the investor sentiment around domestic energy, including nuclear and uranium, those policies should be disinflationary,” she said. “But you have to counter that with some of the other policies related to tariffs. How those will play out is certainly uncertain.”

Meanwhile, Yang believes the energy sector ETFs are already “pricing in expectations,” which explains the post-election rally.

“We’re seeing people trying to hedge both sides of the outcome,” she said.

Craig Golden, senior investment analyst and market strategist at Nepsis, said the risk is not separating the economy from the stock market when it comes to energy.

“Even if production increases under a Trump presidency, that doesn’t necessarily mean energy company stocks will outperform across the board,” he said. “In fact, the revenue and earnings increase from a production boom could be offset by a lower oil price, and the historical data show that energy companies exhibit weaker returns in disinflationary environments.”

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.


Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.


Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.

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