Friday, February 10, 2017

Trump election: an epic day for Wall Street

Since three months of Trump election, let's review my post of that incredible session in Wall Street:

An epic day yesterday for the trading of Wall Street. Known already Trump's triumph, a real surprise for everyone, we are now interested in knowing how you can go to the stock market after this event. I will not comment on the political aspect because it is not a motive of this blog, although my opinion favorable to the republican had already expressed before.

The day was amazing: on election morning it looked like everything was going to be aimed at a tight triumph of Hillary. However, something called my attention in my daily trading: there were a lot more puts than calls for the SPY, the etf that follows the SP500 index. The Put/Call Ratio indicator was flying ... this meant that Trump's triumph was in the minds of many, since a very strong fall in the market was discounted if he won.

Already at night, closed the polls and with the first results of the states, began to glimpse a winner Trump. Wall Street perceived it and its most accurate indicator, the futures of the SP500, /ES began to fall as expected. After hours and with Trump's victory in Florida, it sank -5% (!), The Dow Jones was more than -700 points (!!), the future of gold /GC reached +4%, and the Japanese stock market was sinking. This remained until the triumph of the Republican. Just in the early morning when he gave his first words, very conciliatory, talking about unity and Hillary's greeting, Wall Street reacted timidly, thinking that maybe not everything was going to be as bad as the liberal press painted it. The next day, the market opened with the SPX in negative territory (-2%), to recover quickly with great force, something totally unthinkable the previous day, the Dow almost reaching its all-time high, the European stock markets rising and gold receding to flat ... crazy!

The election week, from bull Monday when the FBI 'cleaned' Hillary, going through the electoral night, the unexpected outcome of the markets yesterday and today in all time highs.

After the event, today it is urgent to know in detail the next Trump economic proposals: tax cuts, tax deficit and public spending treatment, lower regulations, trade agreements and tariffs on imports, Obamacare, etc. to see where to make the best investments and trades, depending on the sectors where he will put more emphasis on his political plan. While this is not clear, all market movements (today began strong upward to normalize at noon) are pure speculation, the 'buy on rumor, sell on news.'

Special mention, the rise of the XLF Finance sector, after the Trump victory, today again in ranges of +3-4%, so the etf that follows this sector at triple speed (3X), the FAS, can be an attractive opportunity to make cash these days. Trump offered a more relaxed regulatory environment, and an increase in public spending to grow the treasury supply. This should raise long-term interest rates, benefiting this sector. And higher long-term yields can boost bank profits, since they increase the spread between what banks earn by financing longer-term assets (loans) with short-term liabilities. Hence, the increases in this sector can continue.

Trump's promise to 'rebuild the country's infrastructure' coupled with its proposal for tax cuts, suggests that inflation will increase with more growth (and debt) and with it higher interest rates. As a result of this, the US Treasury Bonds reached their highest levels of the year yesterday: those that measure the yield, TNX (T-Notes to 10 years) and TYX (30-year T-Bonds), yesterday had increases of the order of +10% (!). Of course the dollar /DX was also very solid yesterday against all its global peers. Conversely, treasury futures, which fear the word 'inflation' /ZN (10-year), /ZB (30-year), or the etf TLT, which measure the price of bonds, fell in the range of 3 to 4%. It is discounted (US bets already at 80%) that the FED will give the Rate Hike in December.

Closing of the main indices, yesterday November 9, post-Trump. To remember.

Within the other sectors, Utilities XLU is the weakest for the second consecutive day, meaning it is a purely defensive sector. The opposite happens with Health XLV that goes very well. Remember that Hillary had promised a strict control of prices and patents to the pharmaceutical and biotechnology sub-sector. Good investment opportunity there. On the other hand, the XLK technology sector is being hit by the idea that Trump can limit commercial agreements, vital for this sector. As indicated above, knowing well the Trump plan we will know where the money will flow. In advance, attentive to Finance, Biotechnology, Infrastructure and Energy.

Today at noon, sectors Finance, Industries and Health remain solid as yesterday. Volatility VIX returning to its average. Continue the Trump effect.