Donald Trump-fuelled stock rally may be coming to an end; these charts tell you why
By Eric Lam and Adam Haigh
Maybe the bet on "unified government" wasn’t such a great one after all.
Investors on Monday further unwound trades initiated in November resting on the idea that the election of Donald Trump and a Republican Congress meant smooth passage of an agenda that featured business-friendly tax cuts and regulatory changes. The idea now looks flawed after the president and Republican legislators failed to proceed with health-care reform Friday.
"Although tax reform appears to have broader support and may be easier to pass, the AHCA experience sends investors a cautionary message about opposing factions within the GOP caucus," Citigroup Inc. analysts wrote, using the abbreviations for the health-care bill and the Republicans.
It’s been hard for analysts to disentangle Trump trades from those stemming from reflation, and solid global economic indicators suggest some basis for bond yields and stock values above the lows of 2016. All the same, alarm bells can be heard across markets, as the following charts illustrate:
The dollar, sometimes a bellwether for US economic confidence, has slumped almost 2 per cent in March and is close to erasing a more than 6 per cent rally since Trump’s election in November. The Bloomberg Dollar Spot Index, a gauge of the American currency against a basket of global peers, is down 4.9 per cent since peaking at a record Jan. 3.
The US benchmark S&P 500 is nearing its average price for the year, when measured using mean prices paid by investors. Falling below that level suggests a drop into losing territory.
Investors are also boosting short positions on the US benchmark, in anticipation of further losses. Short interest as a percentage of shares outstanding in the SPDR S&P 500 ETF has more than doubled this month, to 2.5 per cent, according to data compiled by Markit.
After an extended leave of absence, the so-called fear gauge is back. The Chicago Board Options Exchange Volatility Index jumped 15 per cent last week, the biggest such gain this year, as it became apparent the health-care bill was not going to survive a vote in the House. Even so, overall levels for the VIX remain relatively low compared with the spikes seen last year.
And while the yield on 10-year US Treasuries has dipped since touching 2.63 per cent earlier this month, levels remain in the elevated range seen since the November election.
Maybe the bet on "unified government" wasn’t such a great one after all.
Investors on Monday further unwound trades initiated in November resting on the idea that the election of Donald Trump and a Republican Congress meant smooth passage of an agenda that featured business-friendly tax cuts and regulatory changes. The idea now looks flawed after the president and Republican legislators failed to proceed with health-care reform Friday.
"Although tax reform appears to have broader support and may be easier to pass, the AHCA experience sends investors a cautionary message about opposing factions within the GOP caucus," Citigroup Inc. analysts wrote, using the abbreviations for the health-care bill and the Republicans.
It’s been hard for analysts to disentangle Trump trades from those stemming from reflation, and solid global economic indicators suggest some basis for bond yields and stock values above the lows of 2016. All the same, alarm bells can be heard across markets, as the following charts illustrate:
The dollar, sometimes a bellwether for US economic confidence, has slumped almost 2 per cent in March and is close to erasing a more than 6 per cent rally since Trump’s election in November. The Bloomberg Dollar Spot Index, a gauge of the American currency against a basket of global peers, is down 4.9 per cent since peaking at a record Jan. 3.
The US benchmark S&P 500 is nearing its average price for the year, when measured using mean prices paid by investors. Falling below that level suggests a drop into losing territory.
Investors are also boosting short positions on the US benchmark, in anticipation of further losses. Short interest as a percentage of shares outstanding in the SPDR S&P 500 ETF has more than doubled this month, to 2.5 per cent, according to data compiled by Markit.
After an extended leave of absence, the so-called fear gauge is back. The Chicago Board Options Exchange Volatility Index jumped 15 per cent last week, the biggest such gain this year, as it became apparent the health-care bill was not going to survive a vote in the House. Even so, overall levels for the VIX remain relatively low compared with the spikes seen last year.
And while the yield on 10-year US Treasuries has dipped since touching 2.63 per cent earlier this month, levels remain in the elevated range seen since the November election.
