Post Election Thoughts: Has the Trump Trade run its course?

This week George Goncalves, MUFG Head of U.S. Macro Strategy, discusses the market implications heading into and out of the recent US presidential election. In George’s view there are a couple schools of thoughts forming on how markets participants are looking to further position for a 2nd Trump administration, one that also has Republicans in power in the Congress as well. In one camp, and the one that has worked thus far, has been the playbook from the 2016 Trump 1.0 election, where financials and the dollar rallied but rates sold off. George suggests that there is more than one path potentially ahead and that it will pay to remain open minded on what may happen to the economy, markets and overall policy.  In George’s views starting points matter and a lot of the Trump 1.0 trade playbook could be priced-in already. Overall, the fear of higher fiscal deficits and a resurgence in inflation could be misplaced if there is an honest effort to seek government efficiency and reduce spending. Lastly, George reminds us that “macro still matters” and that the economy remains very bifurcated and sensitive to financial conditions. The next administration is inheriting a stock market with stretched valuations and an economy that has benefited from government spending. Meanwhile, labor markets have been weakening in the private sector for quarters and that may not change until we get further clarity on how companies react to the changes in government and fiscal policies ahead.