Investing.com -- Citi analysts are taking profits on their Trump-related trades as the market shows signs of having partially priced in a Trump victory.
According to Citi, “the risk-reward has deteriorated,” leading the firm to unwind some of its positions. This includes removing a long position on U.S. banks relative to the equal-weighted S&P 500 and implementing a “position unwind basket in EMFX going into the election.”
Citi attributes October’s strong performance of Trump trades to favorable macro conditions but expresses concerns over diminishing upside.
“Trump trades had a very strong October,” the analysts note, but they now see reduced potential gains, prompting them to gradually take profits.
The firm’s cautious approach reflects its broader strategy, as Citi suspects many clients are similarly reducing risk ahead of the election.
Looking ahead, Citi believes post-election momentum could drive markets higher. Their research shows that “chasing price action after elections tends to work,” especially for the S&P 500 and DXY (U.S. Dollar Index).
Citi anticipates that “the SPX should benefit post-election from falling volatility” and better year-end seasonals, signaling potential opportunities once the election is behind.
While most attention remains on U.S. markets, Citi has also taken a more cautious stance in the UK following an unexpectedly hawkish budget.
With less expansionary fiscal policy than anticipated, Citi has exited its SOFR/SONIA trade, stating, “Markets were unpleasantly surprised with a very expansionary budget.”
Overall, Citi is holding back on riskier bets as election day nears, while remaining optimistic about the potential for a year-end rally.