Trump's Made Equities Great Again, as Investors Flee Bondsby
On a morning when Goldman Sachs Group Inc. is again engaged in the thankless art of prediction, it might seem impolitic to reward their bravery with a dig through the archives.
Nevertheless almost a year ago their equity strategists boldly questioned the idea that rising interest rates could prompt a 'Great Rotation,' a phrase first coined by Bank of America Merrill Lynch. Now President-elect Trump is making that rotation great again.
The pivot out of fixed-income was so steep in the week after the election that analysts had to reach for a slew of superlatives straight out of the future president's playbook: "a massive rotation" from bonds to equities is afoot, wrote Jefferies strategist Kenneth Chan, in a wording echoed by Citigroup analysts.
"Violent" was how Bank of America described the switch — a point their phrase "bond bloodbath" may have already rendered moot.
Sure enough as the Republican's victory stokes expectations of both higher rates and government spending, investors are coursing out of fixed-income funds at a pace not seen since mid 2013, selling a net $18 billion worldwide in the week from November 10-16.
Meanwhile the $31 billion that flooded into equities in the same period was the single greatest rush ever, according to Chan's calculations. By 7:59 a.m. in New York the the S&P 500 was trading at 2,187.12 — up almost 3 percent since Trump's win, and near an all-time high.
The smashed records don't end there. The disparity between the week's stock and bond flows was the widest ever, according to Bank of America's Michael Hartnett, making the expectation that Trump will be a polarizing figure true, at least, in markets. Few asset classes have been left untouched by the seismic shift in economic expectations.
Trump has not been good for gold, as the bullish forecasts that had tailed the potential of a Republican victory ahead of the election were dealt a blow by the $2.4 billion of bullion offloaded in the week through November 16 — a more than a two-year peak in selling — as investors reconciled themselves to his plans. While the rush into financials was a record for a single week, according to Banks of America, investors fled emerging-market assets of all kinds.
"Trump's election has stirred emotions, volatility and rotation," UBS AG's Julian Emanuel quipped.