‘Trump trade’ winners face mixed fortunes as US markets wobble

Financials are more likely to survive this week’s market wobbles than commodities as questions start to build over the so-called Trump trade, investment analysts reckon.

The S&P 500 was down 0.3 per cent in early trading today, having fallen 1.4 per cent on Tuesday marking the end of a 110-day rising streak without a 1 per cent drop.

The Nasdaq was this morning down 0.1 per cent, while the Dow Jones Industrial Average was down 0.4 per cent.

Bullish investors appear to be nervous at the ability of US president Donald Trump to implement his most pro-growth policies as he faces resistance to healthcare reforms and confirmation that he is under FBI investigation for links with Russia.

His budget blueprint also included little detail on his proposed infrastructure spend.

Reflation expectations have driven cyclical sectors such as financials and commodities higher, Tilney Group managing director Jason Hollands says.

“There’s no doubt that if the programme of tax cuts, an infrastructure investment blitz and cutting of red tape comes to pass, this agenda should be very pro-growth and this could prove particularly good for bank shares but implementation of this agenda is not guaranteed if Trump can’t carry his own party with him or worse still ends up being impeached.”

Commodity ETFs have enjoyed bumper inflows this year with a Source ETF hitting $1bn of assets just one month after opening, while a UBS ETF also hit the $1bn mark in March.

However, commodities have gone “a little too far” in their recent rally, reckons Chelsea Financial Services managing director Darius McDermott.

“Financials have been underloved for some time and have also enjoyed a rally recently, but not to the same extent as commodities. There is scope for them to do well still if US growth picks up and regulation is relaxed.”

Sheridan Admans, co-fund of funds manager at The Share Centre, also expects commodities to remain flat.

“The commodity rally in our view has been more to do with the China stimulus announcement in late 2015 supporting prices.

“However, given that China has once again started to tighten monetary policy by raising money market rates in order to steady the economy, allied to concern over the speed of Trump’s policy initiatives getting through Congress we suspect prices will remain flat though 2017.”

Admans adds: “Financials should benefit in the medium-term from a rising rate environment but market falls, causing bonds to rally, are likely to be a headwind.”

For the market as a whole, historical data suggests the ending of a rising streak does not necessarily signal the end of a bull market, AJ Bell investment director Russ Mould says.

The S&P 500 has risen 13.1 per cent on average in the one-year following such streaks in the past, according to data going back to 1970, Mould says.

However, Mould warns against complacency.

“With the Vix trading at just 12.4, compared to its lifetime average of nearly 20, and flotations such as Snap, Mulesoft and Canada Goose offering the first potential sign of froth appearing in the markets, investors should at least prepare for further volatility in US stocks, especially if the Trump plan gets off the ground more slowly than hoped.”

The longest rising streak without a 1 per cent drop was in 1985 and reached 116 days.