Market Strategy - Please leave Kevlar vest at home
Erica Stephenson - Apr 19, 2017
Given the positive fundamental backdrop highlighted in our April Strategy Picture Book, we have patiently been waiting for an opportunity to identify a more attractive entry point for the next sustainable leg higher. Although our key tactical indicat
Canaccord Genuity's Tony Dwyer looks at the "Trump Trade"
Given the positive fundamental backdrop highlighted in our April Strategy Picture Book, we have patiently been waiting for an opportunity to identify a more attractive entry point for the next sustainable leg higher. Although our key tactical indicators are still not quite where they need to be for a more offensive posture, the sector rotation and key macro indicators make clear that the defensive trade may already be overdone. In our view, the time to neutralize was in December when it looked like the Administration and Congress were aligned, and expectations were for significant regulatory reduction along with rapid pro-business healthcare and tax legislation. In early December, the “Trump trade” was fully engaged as (1) the relative performance of Info Tech was at a low, (2) the Financial, Industrial, Energy, and Materials sectors were experiencing a relative performance peak, and (3) the 10-year U.S. Treasury Yield was at 2.6%. In plain English, since December (when we moved to a market and sector neutral position), investors have totally shunned the “Trump trade” in favor of Info Tech and the more defensive sectors.
The equity market “Trump Trade” has been underperforming since December. The perceived positive Trump sectors are the Financials, Industrials, Energy and Material, while the negatives are Information Technology and Health Care. Since early December 2017, there has been a huge underperformance of the positive Trump sectors relative to the negative ones (Figure 1). Again, this shows that now is NOT the time to fade the Trump Trade.
Figure 1 - The "Trump Trade" hasn't worked since mid-December
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