August 2017–present: The Trump trade is ... back?
The timeframe since mid-August has been a mixed bag for the Trump trade. As you can see above, our indicator rallied sharply at the beginning of the period, largely on the back of the long-awaited Republican tax plan. The proposed measures focused on a corporate tax cut, as well as a one-time repatriation tax holiday. And since many of the companies that pay high taxes and stash the most cash overseas are the mega-cap tech stocks that wield huge influence over stock indexes, things started to look up.
Since late September, however, the Trump trade has started to flag once again as — let me know if you've heard this before — the S&P 500 hit a series of new records. This time around, the benchmark index was pushed to records by laggard sectors like energy and telecom, while tech faltered. The so-called market rotation that occurred showed once again that the S&P 500 has more tricks up its sleeve as it forges ahead into the ninth year of its bull market.
At present time, the jury is still out on the Trump trade's ongoing influence — or lack thereof. After all, investors are starting to grapple with the prospect of a massive Federal Balance sheet unwind, as well as another set of quarterly corporate earnings.
Trump tweet of the period:
Number of stock market closing records: 13
Is Trump responsible? To be determined.
A great deal of good things happening for our country. Jobs and Stock Market at all time highs, and I believe will be getting even better!
— Donald J. Trump (@realDonaldTrump) September 16, 2017
March 2017–August 2017: The Trump trade dies.
Look no further than the chart above to get an idea of when investors lost faith in Trump's proposed policies. Returns for the most highly taxed companies, infrastructure stocks, and financial firms either leveled off or dropped sharply, hurt by a lack of progress and worries stemming from a healthcare-bill defeat.
Yet the S&P 500 rally raged on, undeterred by the policy failings in Washington. A big part of this can be attributed to the so-called FANG group, consisting of Facebook, Amazon, Netflix and Google. If you expanded that to include other tech stocks like Apple and Microsoft, which were similarly unstoppable during the period, the collection represented the mega-cap backbone that allowed the market to continue its historic climb.
Also helping push stock indexes into the rarefied air was profit expansion. Mentioned in the section above as a minor positive catalyst, earnings growth absolutely exploded for the first- and second-quarter reporting periods, which largely occurred in April and July. The S&P 500 saw profit growth of 14% during the first three months of the year, and 11% for the second quarter, its best stretch since 2011.
Long story short, the market had a lot going for it during the period — and none of it was built on Trump policy.
Trump tweet of the period:
(Note: None of his tweets included the phrase "stock market" in the four-month period between March 2 and July 2.)
Number of stock market closing records: 18
Was Trump responsible? Not a chance.
Just got to the #USWomensOpen in Bedminster, New Jersey. People are really happy with record high stock market - up over 17% since election!
— Donald J. Trump (@realDonaldTrump) July 15, 2017
November 2016–February 2017: The best days of the Trump Trade.
Remember the first few months after the election? It seems like ages ago, and what a simpler time it was. The stock market ripped higher, off to its best-ever start to a new year, largely on the strength of the so-called Trump trade.
And we're not talking about the current iteration of the Trump trade. We mean the one taking place when all the promise of a newly elected but still out-of-office president's pro-business measures were still on the table, including lower corporate taxes, a repatriation tax holiday, massive infrastructure spending, financial deregulation, and a border adjustment tax.
The initial effect of that version of the Trump trade was undeniable. Every day it proved its mettle, as segments of the stock market ebbed and flowed with the latest headlines associated with each potential change.
Sure, earnings reports for the fourth quarter — mostly released in January — saw corporate profits expand. But it was at just half the rate we'd end up seeing later in 2017, rendering its ultimate effect relatively muted.
But you'll note that the Trump trade faded near the end of this period, providing an ominous sign of things to come.
Trump tweet of the period:
Number of stock-market closing records: 20
Was Trump responsible? Yes, definitely, although little did we know that the tax plan rollout he referenced in the above tweet was still months away (more on that below).
Stock market hits new high with longest winning streak in decades. Great level of confidence and optimism - even before tax plan rollout!
— Donald J. Trump (@realDonaldTrump) February 16, 2017
Source: Business Insider India