The Market’s Trump Trade Reversal

Wednesday, May 17, 2017 |

The Trump win took the markets by surprise, but has been a positive for stocks to date.  However, while the stock market has remained positive since then, albeit sideways over the last month or so, many of the Trump Trade themes that pushed stocks higher after the win have since reversed.  

Initially as the chart above indicates, we saw Small Caps (IJR) and Financials (XLF) crushing the overall Large Cap market (SPY).  Additionally, Tech (XLK) lagged while Treasuries (IEF) were negative. 

That all changed around mid-December (below chart).  Tech has been the market leader with Small Caps and Financials lagging the broader Large Cap market.  Additionally, Treasuries have been positive since then as interest rates have stabilized.


Source: Yahoo Finance!  Capital Advisors, Ltd.

Where the market moves from here is anyone’s guess.  Certainly, one can make predictions based on probabilities, but nobody can know with certainty.  Regardless, the above chart provides some sound perspective and simple guidelines to follow:

  • Markets in the near-term are highly unpredictable as fear and greed can come and go rather fast while fundamentals get ignored
  • Thus, short-term trades and themes can reverse very quickly, so having a disciplined exit strategy is prudent if your time horizon is short
  • If you’re a long-term investor, and as hard as it may be, it’s likely best to ignore all the near-term noise and focus on the intermediate and long-term fundamentals
 

IJR - The iShares Core S&P Small-Cap ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities

XLF - The iShares U.S. Financials ETF (IYF) seeks to track the investment results of an index composed of U.S. equities in the financial sector.

XLK - The iShares U.S. Technology ETF seeks to track the investment results of an index composed of U.S. equities in the technology sector.

IEF - The iShares 7-10 Year Treasury Bond ETF (IEF) seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities between seven and ten years.

SPY – S&P 500 Trust ETF aims to track the S&P 500 Index which is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market.

An exchange-traded fund (ETF) is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.  Investors must buy or sell ETF shares in the secondary market with the assistance of a stockbroker. In doing so, the investor will incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

 Investors cannot invest directly in an index.

Past performance is no guarantee of future results.