Taking a bigger picture market view we continue to expect markets to remain focussed on announcements made by Trump in regards to appointments in his administration & actual specifics around policies. As this news flow is released markets will react positively/negatively as we move through the end of 2016 and 2017.
Donald Trump’s recent comments & “tweets” around talking to Taiwan and US manufacturing companies have been making headlines as would be expected. Interestingly, Trump’s vows to ramp up infrastructure spending and ease banking regulations are giving a burst to the US Dow Jones Index that’s sending it soaring past the broader market.
While US stock markets remain close to all-time highs, there has been a rout across global bond markets. As we have discussed, U.S. President-elect Donald Trump’s proposed policies such as tax cuts and US$500bn in infrastructure spend are seen as boosting spending and quickening inflation which translates to higher yields. The term “Trumpflation” has been created to describe this increase in inflation expectations.
According to the Bank of America, the week to end of November 2016 saw the biggest equity fund inflows in 2 years (US$18bn) while bonds saw their biggest outflows in 3.5 years. This is the widest disparity on record. The recent moves are starting to see the idea of a “great rotation” from bonds to stocks gain traction again. The question is whether it will last, and are the current moves overdone. We have already seen some of the higher dividend yielding company’s get hit hard by investors taking profit, as they switch from a “yield” to “growth” investment focus.
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