🐂 Not all bull runs are created equal. November’s AI picks include 5 stocks up +20% eachUnlock Stocks

Trump-Driven Rally: Position Your Portfolio with These 2 Sectors

Published 11/12/2024, 08:51 AM
US500
-
SPY
-
GOOGL
-
NFLX
-
US10YT=X
-
META
-
XLF
-
XLU
-
GOOG
-
XLC
-

Defensives are out, animal spirits are in… again. Or so the latest rotation among US equity sectors suggests, based on a set of ETFs through Monday’s close (Nov. 11).

The recent rush into utilities stocks (XLU) has reversed in recent days while prices have surged for communications services (XLC) and financials (XLF), which are now neck and neck as the top-performing equity sectors year to date.

US Equity Sectors YTD Performance

What’s changed? Donald Trump’s election victory last week.

“The stock market loved the election outcome. But there is nervousness in the bond market. It’s more worried about the size of deficits and the possibility of inflationary tariffs,” says David Kotok, co-founder and chief investment officer at investment management firm Cumberland Advisors.

Ark Invest CEO/CIO Cathie Wood wrote on X yesterday: “Deregulation (defanging the SEC, FTC, and others), government spending cuts (making room for the private sector), tax cuts, and a focus on technologically enabled innovation are likely to turbocharge the US economy more powerfully than during the Reagan Revolution.”

Meanwhile, Yardeni Research president Ed Yardeni predicts the S&P 500 Index will surge by two-thirds by the end of the decade.  

“We’re just seeing a more pro-business administration coming in that undoubtedly will cut taxes,” Yardeni tells Yahoo Finance. “And not only for corporations but also for individuals. Lots of various kinds of tax cuts have been discussed. And in addition to that, a lot of deregulation.”

Changes in sector leadership appear to be on board with the bullish attitude adjustment. The Communication Services Select Sector SPDR ETF Fund (XLC), which holds the consumer-driven likes of Meta (NASDAQ:META), Alphabet (NASDAQ:GOOGL) and Netflix (NASDAQ:NFLX), gapped up in recent days and is now up a sizzling 34.2% this year, fractionally ahead of financials (XLF) and well ahead of the broad market (SPY) and utilities (XLU).XLC-Daily Chart

What could go wrong? A the top of the list of troublemakers: fiscal and inflationary headwinds may dent if not derail some of Trump’s plans for policy.

“The top priority is extending the Trump tax cuts and the signature part of his program. I think that should be easy to pass in Congress, particularly if the Republicans control the House as well,” says former Donald Trump Treasury Secretary Steve Mnuchin.

The challenge is that tax cuts and other policy priorities that Trump advocates – raising tariffs and deporting millions of immigrant workers – could juice inflation. Add in heightened concerns about the US government’s deepening budget deficit and it’s fair to say that Trump and Republicans face a tricky path next year in terms of reaction in the bond market, which is growing concerned about inflation and fiscal risk.  

Another potential concern for the market is the politicalization of monetary policy. Trump believes he should have a degree of influence over the Federal Reserve.

“I think I have the right to say, 'I think you should go up or down a little bit [for interest rates,’” the president-elect said at the Chicago Economic Club last month. “I don’t think I should be allowed to order it, but I think I have the right to put in comments as to whether or not the interest rates should go up or down.”

For the moment, the stock market is paying little if any attention to the recent pop in Treasury yields. The 10-year yield has increased 70 basis points since mid-September to 4.31%. That’s still well below the 5% peak for this cycle to date reached in late-2023. But if the benchmark rate continues to approach its previous high, the bond market could take away the punch bowl at the stock market’s party.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.