The Phaserl


Is the “Trump Trade” Already Unwinding?

by Wolf Richter, Wolf Street:

And where the heck is Dow 20,000?

Over the last ten days, the markets have been jinxed, and nearly everything changed direction. Stocks fell. Treasury yields backed off as beaten-down Treasury prices recovered a little bit. The much maligned dollar, after surging to a decade high, couldn’t quite get to parity with the euro, and then fell against the euro and yen. Banks got bruised. Even oil was down except over the last few hours Friday afternoon. And everyone has been feverishly waiting all month for the Dow to finally hit 20,000 any moment now. And everyone is still waiting….

The Dow peaked on December 20 at 19,975, a ridiculously small 25 points away from party-hat time. Everyone knew it would happen. In fact, it would have to happen because it was just a few decent trading moments away. But since then, Dow 20,000 slipped through the fingers like dry sand. It closed the year at 19,719, so 281 points below, after having been for a big part of the month within a hair of nailing it.

The S&P 500, after falling 0.5% on Friday, is now down 1.5% from its high on December 13. The rip-roaring Trump Trade since the Election has started to unwind (chart by Doug Short at Advisor Perspectives):

Did the master-communicator himself give the signal in his contrarian manner when he tweeted on December 26?

The world was gloomy before I won – there was no hope. Now the market is up nearly 10% and Christmas spending is over a trillion dollars!

Did the contrarian in him mean to signal to the rest of the world that the Trump Trade was over, even before the inauguration – the date at which a lot of pundits figured the Trump Trade would begin to unwind?

But what a year it was!

The S&P 500, after having ended 2015 down 0.7%, ended 2016 up 9.5%, including a big swoon early in the year. From February 11, when it bottomed out at 1,810, it has surged 23.6%.

And bonds went on a wild ride. The 10-year Treasury yield ended 2016 at 2.445% up from 2.273% at end of 2015. It hit 2.57% at peak Trump Trade, up over a full percentage point from the summer. Over the fourth quarter, the yield jumped 84 basis points, the largest quarterly jump since 1994. And prices, which move inverse to yields, clobbered bondholders. But note the decline in yield since December 20:

And stocks partied. Since the election, financials surged, bringing the gain for the year to 29.1%, the best-performing sector in the S&P 500. Goldman Sachs, whose ex-executives are now heavily represented in the Trump administration, shot up 36% since the election and 51% since the beginning of October when Trump’s victory became more than just a possibility. GS was one of the best Trump Trades out there.

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