Bullish Equity Trump Trade
Dave Green • 2 min read
For the last year, equity indices made new highs as they were approaching the last quarter of the year and were expected by major events, such as the elections in USA and the December FED Meeting. As the evolution for further equity indices was pretty sure, the election surged stocks in case Hillary Clinton was the outcome of those elections. There were selling pressures if Donald Trump wins. This was the only event where the big players of the market where having mixed opinions in regards to FED Meeting. It's supposed to have a bit of a bearish outlook on the short term as if interests in US Treasuries were growing once the FED lifted the key interest with some traders, cutting their positions on stocks and hunting the rise in yields on treasuries. With a bullish outlook on long medium to long term, the FED rising rates was a sign of an improving economy. If the FED was keeping the rates on hold, a bullish market was seen at the horizon for sure since traders assume more market players will cut positions in fixed income and start bringing that capital to stock markets in search for yield.
While the second event had the expected outcome, the first one came as a surprise for everyone with Mr. Donald Trump actually winning the presidency of United States of America. As the election unfolded, it became clear that Mr. Trump will win so the equity indices took a dive as the market was playing on the lack of knowledge of Mr. Trump in politics. Actually, all assets were going on a negative dive but a change of tone in Mr. Trump statement is where the direction changed. People believed his statement on commitment; that he will invest heavily in the US infrastructure, which will support the economy by state spending. This turnaround in the market helped the birth of a bullish trend which was called Trump Rally. Below you have major indices for the last quarter till today and marked with red the election moment.
Since then, the market rode the Trump Rally till the beginning of 2017 when, in January, the trend started to fade. Decisive actions taken right away in in his first days as President helped the market come back on a bullish track and the helped the Trump Rally to be intact by the same expectations that Mr. Trump will support US economy with tax cuts and big spending on the infrastructure.
For the last year, the markets were usually receptive to how the Federal Reserve and its counterparties will gauge the low inflation environment that spreaded to a global level. Since Brexit and Trump's election, a bigger role is given to politics in regards to Mr. Trump's original approach to politics. There is also the European elections that will follow in 2017 and which can change the course of developing the European Union.
We recommend you to keep an eye on these events, as well as the rise of theTrump Rally while it's still in place.