David Rosenberg Throws Up On The “Trump Rally” – Here’s Why

Wednesday, December 7, 2016
By Paul Martin

by Tyler Durden
Dec 7, 2016

When I was on CNBC on Monday afternoon, the discussion was over this stellar stock market performance of the past month, otherwise known as the “Trump Rally.”

Let’s examine it a little closer, if you don’t mind.

No doubt there have been stellar performances among the two sectors that stand to benefit most from the “D” word (deregulation): financials and energy. These were the two sectors that were on the long list for a long time in the event of a Trump victory.

Both have lived up to their billing, having advanced 14.1 per cent, and 7.0 per cent, respectively, since the election. These two sectors, representing just over 20 per cent of the S&P 500 market cap, have accounted for all the gains since then. The other 80 per cent of the stock market is flat as a pancake.

Now, I have no problem with financials and energy, and there likely is more upside too. The former was one of the few sectors heading into the election that was undervalued and the banks will get an added boost as well from expanded net-interest margins; the OPEC deal, if it holds together, is an added plus for the energy group.

But the other sector that has been getting heady has been the industrials – soaring on high hopes of some big infrastructure package.

The deregulation file is something that Donald Trump can do on his own and there is also support in Congress – especially with regards to Dodd-Frank and the Volcker Rule – but there is little appetite actually for a boondoggle spending program.

Besides, there always is infrastructure spending going on – the highway spending bill passed two years ago and the remnants of the American Recovery and Reinvestment Act of 2009. It’s just that infrastructure is a nice motherhood issue and it gets investors excited – but frankly, the up-move in industrials premised on infrastructure looks really overdone to me. And when you look at the stock market excluding financials, energy and industrials, well guess what? It is actually down fractionally since Nov. 8.

Go figure.

It is not a stellar market at all. Just a stellar performance by a couple of sectors.

And this is not a Trump Rally, by the way. The market likely would have rallied on a win by Hillary Clinton, too. Practically every new president back to Truman seven decades ago enjoys what is otherwise known as a Honeymoon Rally – the median stock-market advance the month after an election is nearly 1 per cent.

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