Stock Market Doesn't like Trump

US, Japan, value, small caps and cyclicals all outperform

Yesterday all three major US stock indices made new all-time highs which has been attributed to the Trump-effect. Two weeks ago today Americans were at the polls voting for who they want to become the next President. Markets had priced in a Mrs Clinton victory, they were wrong and the rest is history. There have been profound moves in financial markets, bonds have sold off and the US dollar has appreciated. Below in chart format we take stock of the moves in equity markets since their close on Nov 8. We show which countries, regions, sectors and styles have outperformed and underperformed during this time. 

• By country/region Japan and US are the winners, EM the big losers. 
• Style-wise value is strongly favoured to growth as well as higher dividend yielding strategies 
• In terms of size, small caps are the clear beneficiaries 
• Sector winners are cyclicals at the expensive of defensives 
• In EM Russia is the main winner and Mexico the big loser 

Conclusion: Major paradigm shifts in financial markets are not always as easy to spot in real-time. Brexit is an example of such event, which had the potential to be a game-changer, but ultimately, so far at least has proven not to be. Judging by reactions across major asset classes, Mr Trump’s victory IS a real game-changer. Moves in the major asset classes have been more profound than in the wake of Brexit. Of course there are inherent risks in adjusting one’s allocation in response to a single event. Very often initial market moves are a poor indicator of eventual direction. In this instance, however, we believe that the market is for the most part repositioning correctly. The world has been crying out for fiscal stimulus to take over from monetary stimulus for many years, this now has scope to happen. The biggest risk lies in the composition of Mr Trump’s fiscal policy. If it is tax-cut heavy and infrastructure spending light, we will likely see a reversal in the moves discussed above. However, just like the markets, we give him the benefit of the doubt for now. Given his election campaign was run on very few policy details, the shifts towards US & Japanese equities, from growth to value, from defensive to cyclical and from large to small caps can continue for a little while longer in our view.

Chart sources are Thomson Reuters and MSCI