How to navigate state capitalism

January isn’t even over yet, but we’ve already experienced enough unprecedented events to last us the entire year.

President Trump has been turning up the heat on his interventionist approach to the economy, wedging himself into the middle of pretty much everything—from hand-picking which companies he wants to help or hurt, to buying $200 billion in mortgage-backed securities in an attempt to lower mortgage rates, to capping credit card interest rates at 10%.

In the most dramatic development yet, the Justice Department opened a criminal investigation into Fed Chair Jerome Powell this week, a move Powell argued was part of the administration’s strategy to influence monetary policy.

What it all means for investors

These developments would have been unthinkable even a few years ago, yet the market has quietly digested them without nearly as much volatility as many predicted. Part of that is due to the fact that investors don’t trust that Trump’s ideas will ever become policy (aka “Trump always chickens out”, or TACO, trade). But even if things don’t play out the way the president wants, the wave of headlines has put a damper on stocks lately, leaving investors wondering how to proceed.

Tom Lee, head of research at Fundstrat, suggests a straightforward approach: If the White House is intent on designating winners and losers, use that information to your advantage.

He pointed out that the “winners” of Trump’s policy-bonanza include companies that will benefit from lower mortgage rates, as well as the Magnificent 7, energy firms, bitcoin, and ethereum. Meanwhile, he designated credit card companies and institutional buyers of mortgages as “losers.”

“It’s tough to buy things that Washington decides are losers, because last year Washington decided healthcare and consulting companies were losers with DOGE, and those stocks had a very difficult time,” Lee explained in a video to clients.

Lee may suggest just going with the flow, but remember: the companies the president considers to be friends can become foes in the span of one Truth Social post.—LB