Wells Fargo: US rails 'well positioned' for potential Trump return

© Reuters.

U.S. rail stocks could benefit from former President Donald Trump’s potential return to the White House, Wells Fargo analysts said in a recent note. The bank highlights that Trump's economic and trade policies, which previously bolstered the transportation sector, could once again drive substantial growth for U.S. rails.

The note emphasizes that Trump's policies during his previous administration—such as deregulation, lower corporate taxes, increased domestic energy production, and incentivized industrial activity—proved highly favorable for transport stocks.

“Trump's economic policies (lower corp tax rates, deregulation, increased domestic energy production, incentivized capex and industrial activity) were largely good for transport stocks under his previous administration, rising >100% and outperforming the S&P by 35PP,” analysts highlighted.

Wells Fargo believes that similar policies could provide significant tailwinds for U.S. rails, truckers, and intermodal operators in the event of a Trump's second term.

A potential push for greater deregulation and domestic energy independence are particularly noteworthy, Wells Fargo said, as they could spur economic growth by boosting industrial production, construction, housing, and manufacturing.

Analysts pointed out that these policies resulted in robust economic growth between 2017 and 2019, markedly elevating freight volumes and transportation stock returns.

The report outlines a clear order of preference for transport stocks under a potential Trump administration, with U.S. rails leading the pack, followed by truckers and intermodal operators.

“Trump's policies appear less constructive for forwarders and Parcel, while Canadian rails are mixed,” analysts added.

While Wells Fargo sees Candidate Trump's policies as largely favorable for the transports, they also acknowledge some potential offsets. These include proposed Chinese tariffs, greater M&A scrutiny, and rail legislation proposed by Senator Vance.

"Tariffs can be enacted relatively quickly through executive order and could result in an initial pull-forward of demand followed by a lull in trade following implementation. This could be an intermediate-term risk before near-shoring ramps,” analysts explained.

Moreover, they note that lower interest rate expectations, following the recent CPI report, are boosting transport sentiment. Analysts believe that potential Fed rate cuts could stimulate economic activity in sectors like home building, automotive production, and industrial activity, thereby supporting freight demand and asset values.

Trump is currently leading early U.S. election polls, gaining momentum after the June 27 debate and a failed assassination attempt. This resurgence in his political prospects has sparked investor interest in his economic and trade policies, with transports rising 5% since the debate.