Trump backlash adds new risks to the stocks the government owns

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeInvestorTrump backlash adds new risks to the stocks the government ownsThe state is essentially picking winners, not rescuing big U.S. companies that are deemed critical to the economyAuthor of the article:Norah Rami and Matthew GriffinThe Trump administration’s strategy has subverted the reason the government has typically gotten involved in private enterprise, and with it Wall Street’s reaction to the moves. Photo by ANGELA WEISS/AFP via Getty ImagesTraders have made a bundle over the past year following President Donald Trump as the United States government pursues an unprecedented strategy of taking ownership stakes in publicly traded companies.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountBut with the deeply polarized midterm elections approaching and polls suggesting the Democratic Party is likely to win a majority in at least one house of Congress, market strategists see rising risks of the administration’s equity positions facing scrutiny in Washington and the courts. And that could reverse much of the momentum driving these stocks.“There is a sort of interventionist approach that is not fully litigated and mediated in the American system yet,” said Matt Gertken, who leads geopolitical and U.S. political analysis for BCA Research. “So there’s going to be ups and downs in that process.”Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againThere’s no doubt that the government’s involvement has lifted the stock prices of many of the companies in which it has taken stakes. The trend kicked off a rush among investors, particularly mom-and-pop traders, to identify potential investments before they were announced, as the correct pick all but guaranteed at least an initial surge and pointed to longer-term upside.Intel Corp. shares have soared over 300 per cent in the year since the initial report that the Trump administration was in talks to take an ownership stake in the chipmaker. MP Materials Corp. is up 87 per cent since last July, when the Department of Defense made a US$400 million equity investment in the rare earth minerals upstart. And Trilogy Metals Inc. has gained 73 per cent since October, when the U.S. government agreed to take a 10 per cent stake in the Canadian minerals exploration company in a deal that included approval for an Alaska road project that was essential to accessing areas where it has mining claims.However, those numbers have largely come in bursts. Trilogy Metals’ U.S. shares jumped from US$2.09 a share to a high of US$10.60 within days of the deal announcement, then they quickly gave up those gains and are now trading for US$3.62. MP Materials soared more than 150 per cent within five weeks of the government taking a stake, but it’s down nearly 27 per cent in the year since then.Intel is a slightly different case because it’s also caught up in the mania for chip stocks as spending on artificial intelligence creates extreme demand for semiconductors. The stock rose steadily as earnings improved, peaking in June after Trump said Apple Inc. will work with the company to design and produce semiconductors in the U.S. But it’s down 37 per cent since then, the fifth worst performance in the S&P 500 Index over that stretch.Part of the skepticism surrounding Intel involves a shareholder lawsuit against the company’s board, the U.S. Department of Commerce and Commerce Secretary Howard Lutnick, seeking to unwind the government’s ownership position. If it’s successful, investors will have to assess the durability of the administration’s entire portfolio.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.“It is really the government investment that really turned it around, and it’s certainly what I think is a factor in keeping the stock where it is right now,” said Mark Malek, chief investment officer of Siebert Financial, which owns Intel shares. “If you pull that away, the question is then what happens? That is why we haven’t increased our investment at all.”The more conventional concern about the stocks is the highly partisan environment in DC. If the Democrats gain control of the Senate or House of Representatives they can hold hearings and subpoena witnesses. Democratic Senator Elizabeth Warren, who’s in line to chair the Senate Banking Committee if the party wins the chamber, has already written Lutnick questioning the Intel investment. And party leaders are laying the groundwork to investigate companies with ties to the Trump administration and the president’s family.The Democrats are “going to want to punch at the president as often as possible for as long as possible,” said Henrietta Treyz, co-founder of the research firm Veda Partners.She expects Democratic-run committees to summon corporate executives and administration officials to Capitol Hill, creating risks for the companies’ brands and share prices. “That’s one of the most important takeaways for investors right now,” Treyz said.Intel, Trilogy Metals and another investment recipient USA Rare Earth Inc. declined to comment. Trilogy cited the process of closing its deal with the government. The Commerce Department and other companies mentioned in this story did not respond to requests for comment.The risks to investors from litigation may be even bigger than the elections. The Intel shareholder suit argues that the Chips Act doesn’t give the government authority to demand an equity position as a condition of receiving a grant. It alleges that the deal was a breach of the board’s fiduciary duties and amounts to an “extortionary” seizure.Lutnick has asked the court to dismiss the case, saying that the arrangement was authorized under federal law and is important for the U.S. defence industrial base. Intel chief executive Lip-Bu Tan and other board members have also moved to dismiss the case.“If the courts end up deciding that the Chips Act does not give the Commerce Department authority to do what they did with Intel, that has broad ramifications for a lot of these deals,” said Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center.Such a decision would call into question other equity investments made under the Chips Act, according to University of Colorado law professor Ann Lipton. The Commerce Department has used funding from the bill to invest in several other companies, including International Business Machines Corp. and GlobalFoundries Inc.The Trump administration’s strategy has subverted the reason the government has typically gotten involved in private enterprise, and with it Wall Street’s reaction to the moves. In the past, these deals were rare and usually done to rescue companies, as was the case with General Motors Co., which was forced into bankruptcy during the global financial crisis.In 2009, the U.S. Treasury Department took a roughly 60 per cent stake in the troubled automaker to help it emerge from Chapter 11, and by 2013 had sold all of it. The Bush and Obama administrations were heavily criticized by Republicans for the bailout, spurring on the nascent Tea Party movement with complaints of government overreach into the free market.Now, the state is essentially picking winners, not rescuing big U.S. companies that are deemed critical to the economy. The stock gains reflect the view “that you now have a customer and a spokesperson in the government that is going to make your company successful,” said Aniket Shah, global head of Washington, sustainability, and transition strategy at Jefferies.Of course, the ultimate risk for owning these stocks is familiar to all investors, namely the vagaries of the market itself. If the government gains control over businesses’ decisions and investment dollars chase political trends, that will erode shareholder value over the long term, according to Gina Martin Adams, chief market strategist at HB Wealth Management.“The risks of government ‘backing’ have always been there,” she said in a text message. “It may have positively influenced stock prices, but that is likely due (at least in part) to investors chasing politics, and that makes the stock price momentum quite vulnerable.”—With assistance from Caitlin Reilly and Michael Leonard.We apologize, but this video has failed to load.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.