Trump Backlash Adds New Risks to the Stocks the Government Owns

(Bloomberg) -- Traders have made a bundle over the past year following President Donald Trump as the US government pursues an unprecedented strategy of taking ownership stakes in publicly traded companies.

But 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 US political analysis for BCA Research. "So there's going to be ups and downs in that process."

There'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% 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% since last July, when the Department of Defense made a $400 million equity investment in the rare earth minerals upstart. And Trilogy Metals Inc. has gained 73% since October, when the US government agreed to take a 10% 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' US shares jumped from $2.09 a share to a high of $10.60 within days of the deal announcement, then they quickly gave up those gains and are now trading for $3.62. MP Materials soared more than 150% within five weeks of the government taking a stake, but it's down nearly 27% 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 US. But it's down 37% since then, the fifth worst performance in the S&P 500 Index over that stretch.