Following Republicans’ Missed Opportunities, Be Cautious About ‘Trump Stocks’

Last week’s State of the Union address was supposed to be a confirmation of the blueprint of the current election: an energetic and revitalized Donald Trump was poised to offer a clear contrast to sleepy, bumbling President Joe Biden. However, circumstances have changed – and that has clear implications for so-called Trump stocks like CoreCivic (CXW) and Digital World Acquisition Corp (DWAC).

For Democrats and their supporters, it was easy to be apprehensive about what would transpire at the SOTU address. After all, Biden skipped last month’s Super Bowl interview, which would have given the American people a chance to understand his vision for the nation. For the administration, it would have provided an opportunity to dispel criticism that the president is not up to the job.

Not helping matters for the left were Trump’s relentless attacks on Biden. Agree or disagree with the former president’s politics, one element of his campaign is indisputable: Trump commands intense loyalty among his core voting base. Thus, on the flipside, Republicans were energized ahead of the SOTU address. They were probably salivating at the prospect of dissecting Biden’s myriad slipups.

That’s not exactly what happened.

To be fair, Biden did not give a clean speech – there were some flubs and some coughing that interrupted certain moments of his time in front of the House chamber. However, the address was upbeat and surprisingly vigorous. That may have caught the Republicans off guard as they attempted to rebut the president.

However, giving the rebuttal was Alabama Senator Katie Britt, which was delivered in an unusual manner. It was widely panned, even ending up as a spoof on “Saturday Night Live.” Now, instead of going on the offensive, Republicans are attempting to play damage control.

This unexpected level of uncertainty raises considerable doubts about popular Trump stocks.

Questions and Put Options Rise Against Trump Stocks

On Monday, the U.S. market was muted ahead of a key inflation report. This readout will likely influence the Federal Reserve’s possible decision and timing of interest rate cuts. Given the wide-reaching importance of the report, the Trump stocks traded under less-than-auspicious circumstances.

Still, it cannot be avoided that without a second Trump term, certain controversial securities like CXW and DWAC may face tough times. The former is a private prison operator, a business that’s scandalous even in the best of circumstances. With issues of social equity rising to the forefront during the COVID-19 crisis, this enterprise has become all the more questionable.

As for the latter, DWAC is the special purpose acquisition company that got the regulatory nod to merge with Trump Media & Technology, which runs the conservative-leaning Truth Social platform. However, if Trump doesn’t win, the platform risks becoming a fading outlet for sour grapes.

Perhaps not surprisingly, unusual options activity may be pointing toward rising pessimism for popular Trump stocks. For DWAC, the most aberrant trade was for 2,049 contracts of the Mar 15 ’24 33.50 Put. As for CXW, there was relatively heavy volume – 90 contracts for the Sep 20 ’24 15.00 Put and 56 contracts for the Mar 15 ’24 15.00 Put – registered on Monday.

Of course, one day’s trading isn’t enough to declare that Trump stocks are derailed. However, the central issue here is that these controversial businesses need a major political catalyst. That may be especially true for DWAC.

As a social media play, Truth Social faces significant competition. There has to be a compelling reason for people to want to use the platform. Winning would go a long way in sparking that desire. But losing? When the underlying candidate long promoted an image of strength and vigor?

Presumably, that wouldn’t go over so well, even with the loyal Trump base.

Not All Trump Stocks Are the Same

To be clear, not all Trump stocks are the same. For example, Cheniere Energy (LNG) may have a bright future, irrespective of who takes the White House. Of course, pro-hydrocarbon Republicans offer a better shot for upside success if you’re an LNG stockholder. However, a second-term Biden administration may have to adopt a nuanced stance regarding the fossil fuel space.

I’m certain that President Biden would rather get rid of all hydrocarbon infrastructure and replace them with clean, green and renewable solutions. That would be impossible. The world runs on oil and gas. With geopolitical tensions worsening, the free world needs access to traditional energy commodities. Frankly, the U.S. would be in a good position to help provide such resources.

Trump stocks like LNG are a different breed: they’re important to Republicans but they’re also just as important to Democrats (they just might take some extra time to realize it). But private prisons and right-wing social platforms? I’m sorry but these businesses appear to feature increasingly narrow relevancies and thus are dependent on a Trump win.

I used to think that was a given. After last week’s interesting developments, I’m not so sure now.