Trump Trade' Waned in First 100 Days
28 April 2017 - 1:46AM
Dow Jones News
By Aaron Kuriloff
Markets are signaling caution after investors greeted President
Donald Trump's election with enthusiasm.
Bets on higher economic growth, inflation and interest rates --
which became known as the "reflation trade" -- have eased since the
election. The yield on the 10-year Treasury note is lower than it
was when Mr. Trump took office, including a decline Wednesday after
the White House unveiled its tax proposal. The U.S. dollar has
retreated from a 14-year high hit after the election.
Many popular postelection wagers took a hit last month after
Republicans failed to repeal and replace the Affordable Care Act,
which highlighted the difficulties they could face advancing new
legislation even while holding the White House and both houses of
Congress.
As hopes for swift enactment of business-friendly tax cuts,
regulatory rollbacks and infrastructure spending have waned,
investors have dialed back on stocks that were expected to benefit
from such shifts, like bank and industrial shares. They have poured
money into companies that have generally served up
better-than-average returns since the financial crisis, such as
large technology companies.
Strong earnings reports from bellwether companies including
McDonald's Corp. and Caterpillar Inc. helped stocks rally broadly
this week, propelling the tech-heavy Nasdaq Composite past 6000 for
the first time.
"People will ultimately look through that stuff and focus on
reality, and the reality is we're on a pretty significant upswing
when it comes to earnings data," said Nathan Thooft, co-head of
global asset allocation at Manulife Asset Management. "On top of
that, we have a very supportive economic backdrop."
Other moves have reversed course. The yield on the benchmark
10-year U.S. Treasury note remains above its Election Day level of
1.867%, yet has fallen to 2.291% from 2.466% on Jan. 20. The WSJ
Dollar Index, which measures the U.S. currency against 16 others,
is above where it was on Nov. 8 but has fallen roughly 2% since
inauguration.
Few money managers are ready to declare that the so-called
reflation trade is dead. Data pointing to economic expansion in the
U.S. and around the world persist. The reflation trade has tended
to regain some steam on signs of progress on Mr Trump's agenda,
including in recent sessions as the White House was preparing to
release general principles for tax legislation.
"I think the market's hopeful, but skeptical, and to the extent
you get anything of substance, that's the icing on the cake," said
Erik Davidson, chief investment officer at Wells Fargo Private
Bank.
--Min Zeng and Ira Iosebashvili contributed to this article.
(END) Dow Jones Newswires
April 27, 2017 11:31 ET (15:31 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.