No matter your politics, the post-Election Day stock market rally has been nothing short of tremendous. Major U.S. stock market indices are up between +11% and 17% since November 8th.
Still partisanship is about as rampant in portfolio positioning today as it is pervasive in newsrooms across the country. As the New York Times wrote yesterday:
"In interviews with more than a dozen money managers in the past week, nine senior investment managers or hedge fund executives predicted that a market decline of at least modest size was likely to occur in the near future."
Markets are getting ahead of reality, they say. Topping the list of reasons why is skepticism that President Donald Trump can pass an ambitious agenda: cutting regulatory red tape, trimming corporate taxes, and boosting $1 trillion in infrastructure spending.
More dramatically, the Times noted:
"A number of the money managers interviewed are looking at online betting websites that allow participants to place wagers — offbeat as they may be — on whether Mr. Trump will be impeached before the end of his current term as one indicator of popular perception that could depress stocks in the coming months or years."
Some of these betting sites put a first-term impeachment as high as 55% recently.
A Closer Look At Investors' Partisan Portfolios
#ElectionDay #TrumpTrade #SmallCaps
Investor skepticism is clear as day. According to the CFTC's data on institutional investors' net futures and options positioning, since the Election Day rally began, big banks and hedge funds have been forced to cover short positions in U.S. equities and get long (see Chart of the Day below).
The Russell 2000 small cap index (red line) saw a massive post-Election Day spike in bullish positioning as investors chased the rally in small caps. Investors were then betting on Trump's Strong Dollar, Strong America rhetoric. (Small cap stocks are more domestic oriented stocks and would be a direct beneficiary of accelerating U.S. economic growth.)
That's been pared recently as doubtful investors – like those mentioned by the NYTimes – bet against the rally. Investors aren't bullish enough.
The U.S. Economy Is Growing
#Economy #GDP #GrowthAccelerating
Your political biases have no business in your portfolio. Recent strength in U.S. economic data is nothing to dismiss.
- Retail sales and consumer price inflation are near or above 5-year highs.
- Consumer confidence hit 15-year highs.
- Companies surveyed, as part of the ISM Manufacturing readings, are saying sales backlogs and new orders are rising to three year highs.
- Meanwhile, 487 of 500 S&P 500 companies have reported sales and earnings growth of +4.9% and 6.3% (year-over-year).
(Check out this video in which Hedgeye CEO Keith McCullough explains why you should, "Leave Your Politics Out of Your Portfolio.")
Bottom Line
"Sure, a nice big pullback in everything that hasn’t pulled back in a month would be nice," writes McCullough in today's Early Look. "And since I’m quite sure under-performing hedgies will be covering shorts on those pull-backs (not getting shorter) I’m happy to stay calm, carrying on as a growth bull."
Stay long the U.S. stock market.
