June 24, 2017, 3:11 am
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‘Trump Trade’ turns to trepidation as investors unwind

NEW YORK- Investors were shelving rosy hopes for US tax reform and rethinking strategies premised on Donald Trump’s economic growth promises on Wednesday, as the President faced his loudest criticism yet over possible collusion between his election campaign and Russia.

From stocks to bonds to the US dollar, a bevy of trades that have been fashionable since Trump’s election last November, were getting dialed back or in some cases shredded as his reform agenda looked increasingly vulnerable amid the fallout from his firing last week of James Comey, the director of the Federal Bureau of Investigation.

The uncertainty about Trump’s future increased in the last 24 hours over allegations Trump had sought to end Comey’s investigation into ties between the president’s first national security adviser, Michael Flynn, and Russia, and even some Republicans were now calling for a deeper probe into possible obstruction of justice.

The result was the harshest sell off yet in US stocks since Trump was elected and a jettisoning of positions that were tied to the notion that his policies would stoke economic growth and inflation.

“The Trump Trade is over as of today,” Ross Gerber, co-founder and CEO of Gerber Kawasaki Wealth and Investment Management, who said they have been selling for the past 45 days and continued to be bearish on risky assets today. “We’ve seen cracks all year, but today, this is the first institutional selling we are seeing.”

Indeed, some “Trump trades” have been unwinding for weeks, especially in the bond and currency markets where bets on inflation risks and economic growth prospects are most prevalent.

“This has created opportunities for investors,” said Richard Benson, managing director, co-head of portfolio investments, Millennium Global Investments, London, who said they had been short US dollars against European currencies. “And right now, we’re looking at these opportunities.”

On Wednesday, one key indicator of the level of inflation five years from now fell to its lowest since late November. Meanwhile, the US dollar, which had surged more than 5.0 percent after Trump’s election, was effectively back to its Election Day level.

The real pain trade on Wednesday, though, was in stocks. Through the end of last week the S&P 500 stock index had gained more than 12 percent since Trump won the White House, and while the index has seen one other day since last November’s election in which it fell by more than 1.0 percent, Wednesday’s drop of 1.7 percent was its largest one-day fall in eight months.

“It doesn’t mean that institutions are saying: ‘its time to leave the US’, but for various reasons it’s time to go to the sidelines,” said Michael Purves, chief global strategist at Weeden & Co.

Julian Emanuel, executive director of US equity and derivatives strategy at UBS Securities, said clients were “certainly concerned because it increases the uncertainty”.

With Washington policymakers distracted by Trump’s political problems, investors were betting on a longer timeline to get to tax reform. - Reuters
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