Sentenced to success: Why private prisons stocks soared on the failed Trump assassination attempt
The "Trump trade" has been a focal point and guessing game for investors following the July 14 failed assassination attempt on former President Trump. Yet, as the market opened Monday, July 15, it became clear which stocks were impacted, starting with DJT, President Trump's media company.
It saw a boost of roughly 50% from its Friday close. Despite this surge, DJT is considered a meme stock with a valuation grossly disconnected from reality. In fact, in November 2023, the company's accounting firm had "substantial doubt" about the company's ability to remain in business. This challenges retail traders, especially as sophisticated investors will likely short the stock, creating exaggerated volatility. Yet its volatility is something that experienced trades can explore.
Private prison stocks
CoreCivic (CXW) and Geo Group (GEO) were two stocks that rose sharply on Monday. The market's reaction underscores the anticipation that Trump's strong stance on immigration and crime could lead to policy changes favouring private prison operations.
Both CoreCivic and Geo Group hold a significant share of the private prison market, roughly at 40% each, but manage only a small fraction of the total U.S. prison population, at roughly 9%. The rest is managed by the government. This discrepancy highlights potential growth opportunities, especially if Trump, known for his tough policies, is re-elected, providing a ray of optimism for investors.
In addition, a Trump victory is likely to halt or reverse current opposition to private prisons under the Biden administration, which has aimed to reduce federal reliance on these facilities. As recent as June 2024, CXW, drop roughly 20% as ICE dropped a contract with them to close the U.S. biggest ICE detention center by early August, 2024. It is possible that Trump will reverse this.
For GEO, under the Biden administration, the volume of new contracts has significantly declined compared to the Trump era. In 2020, the final complete year of Trump's first term, the company secured 87 contracts, surpassing any year during Biden's presidency.
GEO technical outlook
From a technical standpoint, Geo Group (GEO) was stuck in a wedge-like pattern for approximately 94 days, with the price breaking out of this pattern on Thursday, July 11. The price pushed higher on Friday as projected by the pattern, and then saw a significant leap on Monday, July 15, following the assassination attempt on President Trump.
According to the pattern, the price could still push higher and reach the 18.55 level, which closely aligns with the high seen last September 2019. The next major level beyond that is roughly 28% higher, corresponding to the June 2019 high.
CXW technical outlook
CoreCivic's situation is less clear than Geo Group's. Yet the trend is bullish above $13, and dips to the $13.50-$14 range are likely to be met by buyers, targeting $14.69, which acted as support from April to June, followed by $16 before higher prices can be anticipated.
