What Trump 2.0 Could Mean for U.S. Energy Stocks

The 2024 U.S. presidential election could introduce notable transformations in the energy sector, especially if Donald Trump is reelected, according to analysts at Mizuho in a recent report.

A detailed review of Trump’s proposed energy initiatives and his past performance suggests several significant effects on U.S. energy stocks.

Trump’s Energy Strategy

Boosting Domestic Energy Production

Trump’s 2024 campaign focuses on significantly increasing domestic energy production. His aim is to lift restrictions on oil, natural gas, and coal production to lower energy costs and position the U.S. as a dominant global energy producer.

This approach is likely to favor traditional energy sectors, especially oil and gas, while potentially leading to cuts in regulatory oversight and environmental protections.

Changes to Regulations and Fiscal Policies

The Trump administration intends to eliminate what it considers "costly and burdensome" federal regulations. This includes relaxing restrictions on U.S. energy production and possibly abolishing vehicle efficiency standards.

Additionally, Trump’s agenda encompasses a reduction in federal spending, which could result in diminished subsidies for renewable energy technologies and lower budgets for regulatory bodies such as the Environmental Protection Agency.

Tax Reforms

Trump aims to reduce taxes and cement provisions from the Tax Cuts and Jobs Act. This includes targeting the repeal of the Corporate Alternative Minimum Tax, which has impacted U.S. oil and gas companies facing net operating losses.

Sector-Wise Impact

Oil and Gas

Trump’s policies are likely to benefit the oil and gas sector through lower regulations and increased output. Companies such as Chevron, ConocoPhillips, and EOG Resources might reap rewards from lifted restrictions and enhanced offshore projects.

However, the pressure to lower gasoline prices could result in increased oil supply from OPEC+, potentially affecting oil-focused exploration and production firms like ExxonMobil and Occidental Petroleum.

Midstream and Infrastructure

The drive for expanded domestic energy production and infrastructure development is expected to positively impact midstream companies. Entities involved in transporting and storing energy, such as Williams Companies and Targa Resources, could witness higher demand and greater investment.

Renewable Energy

While the Trump administration may slow the growth of renewable energy subsidies, certain incentives, like those for green hydrogen and carbon capture, may persist.

Nonetheless, companies that heavily depend on current subsidies and climate policies, such as First Solar and NextEra Energy, could encounter challenges. However, lower interest rates and a focus on U.S. manufacturing might provide some support for renewable stocks through overall economic growth.

Economic and Market Perspectives

Inflation and Energy Costs

A key aspect of Trump’s energy policy is to decrease energy costs, deemed essential for managing inflation and fostering economic growth.

Market Trends

Historically, energy stocks underperformed compared to the broader market during Trump’s first term, even when excluding the pandemic year of 2020.