Data Source: Bloomberg
- The cyclical, reflationary ‘Trump’ trade was cruising along up until the latter part of February when investors bailed on the ‘Trump’ trade and turned sharply defensive.
- Towards the end of the month, U.S. small caps and cyclicals such as energy turned south as investors shifted into safe-haven yield-sensitive assets such as utilities and REITs. As a result, high dividend and high quality strategies outperformed this month.
- Precious metals continued their advance and lead all major asset classes so far this quarter as they also benefited from the defensive shift.
- The fixed income market has become less sanguine on Trumpflation as the long-end continues to flatten despite strong indications from the Federal Reserve that they will hike rates three times this year as opposed to the two hikes priced into Fed funds futures.
- If there were signs that cyclical reflation was about to flag, those signs are not showing up in the credit markets as credit spreads continue to narrow and are approaching their 2014 lows just prior to the commodity price collapse in the fall of that year.
- In addition, S&P consensus operation earnings are being ratcheted up with investors now expecting 22% growth in 2017. Year-over-year revenue growth has also turned positive.
- The U.S. has reasserted its leadership as the best performing market among the major global regions. Yet much of this leadership is being driven by a flight to safe-haven sectors stumping many strategists who have positioned for cyclical reflation.
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