Trump is back: what does that mean for the markets?

Summary

Trump is back and the Fed cut rates: deregulation, tax cuts, and crypto are all back on the table. Fed cutting interest rates by 25 bps also means that they seem happy (at least so far) with how the economy is doing and their progress on inflation. Markets attention will now be mainly on two things: strong fundamentals (aka earnings) and any signals on how Trump’s cabinet will be shaping up. All of this is also on the foundation of the US macro economic backdrop: lets hope there’s no drastic weakening with job numbers, consumer spending, etc.

I. The calm before the storm…?

Taking a look at the last 3 Presidential cycles, VIX (the so called “fear index”) is substantially higher leading up to the election compared to after the election. As you see below, markets seem to calm down after the election with VIX returns being negative after every election.

Why does it matter? Seems like equity markets get more bullish right after an election, a potential signal for traders moving forward (and one they definitely took this time).

II. Jobless claims are definitely increasing, but not out of the norm yet

This week’s jobless claims show numbers are still within range from a 4 week moving average, adding confidence that we are still in the soft landing cateogry. As the plot shows though, weekly claims are still much higher than where we started this year.

Why does this matter? Jobless claims are a cornerstone of the Fed’s dual mandate: low inflation and full employment. As the Fed continues to battle inflation, the focus soon might be more on any upticks in jobless claims.

III. Top performing ETFs since Trump was elected…48 hours ago

Trump trade has been a highlight this year since Bitcoin surged during the summer as Trump proclaimed being pro crypto. This chart shows a simple trend for the last 48 hours tho: large growth stocks are gaining the most, as tech stocks benefit the most from deregulation and the AI boom

Why does it matter? As the next few months unfold before Trump is inaugurated, whoever he chooses as his cabinet will definitely impact the best and worst performing ETFs

That is all for this week folks! If you enjoyed please subscribe! 🤝