Most of the knee-jerk “Trump trades” have fizzled out
Besides bitcoin, the US dollar, and Geo Group, positions that are presumptive beneficiaries of the new administration have lost ground since November 6.
Financial markets reacted decisively the morning after President-elect Donald Trump’s and congressional Republicans’ electoral successes as investors scrambled to price in a litany of potential policy shifts and what those might mean for companies and the economy.
Bitcoin, banks, private prison stocks, small caps, steel companies, oil and gas producers, Treasury yields, and the US dollar all rocketed higher on November 6.
A month removed from the vote, how many of those moves have had staying power and built on those gains? Well, not many.
Hopes for a more lax regulatory environment propelled banks and energy stocks higher — in the case of the latter, even as crude-oil prices sank. That impulse has proved short-lived.
The Russell 2000’s burst of outperformance versus the S&P 500 has also faded. Stocks that are presumptive beneficiaries of Republican policies are down compared to Democrat-linked companies since November 6. And Treasury yields are now below preelection levels.
A caveat: since Trump’s prospective victory was getting priced into financial markets before Election Day, some of these trades were doing well ahead of the event. In addition, given the significant repricing of a lot of these pair trades on November 6, it’s not surprising that there’d be a bit of consolidation afterward.
And, of course, there are a few big exceptions where the postelection knee-jerk reactions had significant follow-through. GEO Group’s strong run of outperformance continued, the US dollar has extended its gains, and bitcoin has broken above $100,000.
