For Analysts, Trump Can Literally Make Everything Great Again
Donald Trump's campaign slogan captured the imaginations of almost half of America's voters. Now it's enthralling Wall Street.
Sell-side analysts believe Trump can make everything from securitized bundles of home loans, to the U.S. dollar, to mergers and acquisitions "great again," according to a recent rush of research notes borrowing the President-elect's catchphrase.
While such homages may often be tongue-in-cheek, Trump's surprise win in the U.S. presidential elections has given strategists a chance to unveil a host of new trade ideas after years of markets characterized by easy monetary policy, ultra-low interest rates, slow economic growth and low dispersion of returns.
The emerging consensus holds that Trump will boost the U.S. dollar, interest rates and inflation as he embarks on a mix of trade protectionism and fiscal stimulus financed through debt.
"Trump win makes reflation trades great again," read a Nov. 9 headline from Citigroup Inc.'s Asia research team that is characteristic of the new oeuvre. Ten days later their colleagues on Citi's macro strategy team confirmed that "Trumponomics" would increase the value of the greenback in a Nov. 18 note called "Making the $ Great Again."
"Trump's win should provide a further catalyst for inflation expectations and the inflation risk premium," Barclays Plc analysts wrote in a Nov. 9 note titled "Making TIPS great again." The gap between 10-year Treasury Inflation-Protected Securities and benchmark U.S. Treasuries — a gauge of the market's inflation expectations — has soared to the highest in a year and a half as investors place bets that prices will accelerate under Trump's presidency.
Meanwhile, Wells Fargo Securities LLC credit analysts led by George Bory argued that "next year could be another record year for M&A as Trumponomics are implemented" and higher stock prices translate to bigger deals. Their Nov. 18 research note came with a section subtitled "Making M&A Great Again."
In a Nov. 13 note called "European Financial Movers: Make Our P&L Great Again," analysts at CreditSights Inc. wrote that while improved earnings for the third-quarter of the year helped boost European financial stocks: "we also suspect investors are buying into the potential benefits of deregulation," they said.
Energy analysts at Morgan Stanley added a caveat to their thesis that Trump could provide a boost for oil refiners in the form of a question mark, in their note titled: "Make Refining Great Again?" Still, the strategists argued that the potential rollback under Trump's administration of certain tax credits granted to renewable energy sources could generate a $1.4 billion boon for companies including Valero Energy Corp., HollyFrontier Corp., and PBF Energy Inc.
Citigroup's analysts for residential mortgage-backed securities (RMBS) that aren't backed by the U.S. government's housing agencies titled their 2017 outlook: "Making RMBS Great Again," picking up on the structured-finance industry's hopes that the U.S. President-elect's promise to dismantle the 2010 Dodd-Frank Act could mean an easing of new rules for issuers of securitized debt.
Other things that analysts suggest Trump could make good — if not necessarily great, again — include materials, engineering stocks, metals, U.S. coal production, the biotech sector, term premiums, small-cap equities, retail spending — and Wall Street itself. Financials including large banks such as Goldman Sachs Group Inc. and JPMorgan Chase & Co. have surged in the aftermath of Trump's victory, with investors pouring a record $4.9 billion into the Financial Select Sector SPDR exchange-traded fund in the week following the election.
"For analysts, it is very tempting to construct a logical narrative," the commodities team at Barclays wrote in a Nov. 13 note called "Making commodities great again?"
"However, there are a number of problems with this," they cautioned. "First, Trump’s policies on most issues of importance to the U.S. economy are unusually vague and difficult to pin down ... Second, exactly what these goals mean and how they play out in the policy arena is very difficult to say ... Third, the human tendency to look for patterns means there is a bias to make connections where there may be none and, indeed, where other factors are more important."