U.S. railroad stocks could benefit from former President Donald Trump’s potential return to the White House, analysts at Wells Fargo said in a recent note. The bank argues that Trump’s economic and trade policies, which have previously boosted the transportation sector, could once again drive significant growth for U.S. railroads.
The note stressed that Trump’s policies during his previous administration – such as deregulation, cutting corporate taxes, increasing domestic energy production, and stimulating industrial activity – have proven to be very favorable to transportation stocks.
“Trump’s economic policies (lowering corporate tax rates, deregulating, increasing domestic energy production, and stimulating capital spending and industrial activity) were largely good for transportation stocks under his previous administration, rising >100% and outperforming the S&P by about 35 basis points,” analysts said.
Wells Fargo believes similar policies could provide strong support to U.S. railroads, truckers and interstate transportation operators if Trump wins a second term.
The potential push toward more deregulation and domestic energy independence is particularly noteworthy, Wells Fargo said, because it could spur economic growth by boosting industrial production, construction, housing and manufacturing.
Analysts noted that these policies led to strong economic growth between 2017 and 2019, leading to a significant increase in shipping volumes and transportation stock returns.
The report highlights a clear order of preference for transportation stocks under a potential Trump administration, with U.S. railroads topping the list, followed by trucking companies and intermodal operators.
“Trump’s policies look less positive for shipping and parcel companies, while Canadian railways look mixed,” the analysts added.
While Wells Fargo sees candidate Trump’s policies as largely favorable to transportation, it also acknowledges some potential offsets. These include proposed Chinese tariffs, greater scrutiny of mergers and acquisitions, and Sen. Vance’s proposed railroad legislation.
“Tariffs could be imposed relatively quickly by executive order, and could lead to an initial drop in demand followed by a trade slump after implementation. This could pose a medium-term risk before production increases in nearby regions,” the analysts explained.
Moreover, they noted that expectations of lower interest rates, following the recent CPI report, are boosting transportation sentiment. Analysts believe that potential rate cuts by the Fed could stimulate economic activity in sectors such as homebuilding, auto production, and manufacturing, thereby supporting demand for shipping and asset values.
Trump is currently leading the polls for the early US election, having gained momentum after the June 27 debate and a failed assassination attempt. This revival in his political outlook has sparked investor interest in his economic and trade policies, with transportation prices up 5% since the debate.