US indices hit record high

In the two weeks since Trump won the race to the Whitehouse US stock markets have surged. For the first time since 1999 all four US indices are trading at all-time highs and are showing few signs of slowing down.

Rewind two weeks and the markets had almost completely priced in a Clinton win, so after Trump’s shock election we are now seeing a massive repositioning and major repricing of assets. Investors are rushing into US equities and the US dollar whilst dumping emerging market assets and bonds.

Let’s party like it’s 1999

All four US indices are trading at record highs for the first time since 1999 as investors cheer the prospects of fiscal stimulus and tax cuts as Trump plans to inject heat back into the US economy.

The Dow Jones has hit a record high of 19,000 and there are a handful of stocks that have boost the index in its recent rally. Goldman Sachs and JP Morgan are up 16% and 11% respectively since polling day in the US, as the prospect of deregulation, in addition to a higher interest rate environment which will boost banks profitability has pushed the stocks higher; the financial sector on the S&P is trading 11% higher. Other stocks which have also benefitted from Trump include Caterpillar, on the prospect of increased infrastructure spending and United Healthcare as the Clinton trade unwinds.

Picking up the rear is the Nasdaq composite index, which is only up 1% since the US elections; technology stocks have a heavy reliance on global supply chains and therefore a Trump Presidency with all his anti-trade rhetoric could be very disruptive for firms such as Google parent company Alphabet, Amazon and Apple.

Small caps proving to be the Trump trade

The Russel 2000 has rallied 10% since Trump’s triumph. This index is composed of small cap US companies and the idea behind this Trump trade is that these domestically focused companies will be protected from dollar strength and therefore out-perform the larger multinationals which will experience currency headwinds as the dollar rallies.

For the time being these trends look set to continue at least for the time being. The prospects for the US look good under Trump and given the uncertainty surrounding Brexit and sluggish growth in Europe US equities are looking increasingly enticing for investors.

We can’t give Trump the credit for everything

There are other stories that are running parallel to Trump being elected, which are also providing optimism and a boost to the markets. Firstly, China has shown signs of stabilization recently and is ramping up spending on infrastructure once again, resulting in continued consumption, which has been good news for the commodity market, but especially the metal markets. Commodities have had the best 3 days in since May, providing a boost to commodity stocks.

Secondly oil markets are rallying on renewed optimism that OPEC will manage to hammer together a deal to cut production at the OPEC meeting in November. After a 4% rally in oil in the previous session, today’s price action is more shaky. Looking back since Trump won the elections, the S&P energy sector has rallied over 4.3% which has stemmed from production cut hopes rather than anything particularly associated with Trump.