Trump trade: state of play in charts

US markets staged a stunning turnround on Monday, clawing back the initially deep losses caused by fading faith in the Trump administration’s economic policy platform being enacted. But there is a growing sense of a possible inflection point in the “Trump trade” that has dominated markets since the US election.

US equities touched new record highs in early March, but since then many popular bets — such as on a stronger dollar, rising bank and small company stocks and more volatility — have fizzled. Here are some charts that show the current state of play for the Trump trade.

First up is the US dollar, which has sagged as the Federal Reserve has declined to quicken its pace of interest rate increases, unconvinced that economic growth and inflation are about to accelerate markedly. Short-term interest rates matter greatly to currency movements, and the dollar’s recent correction is a good illustration of how bets on faster growth and more aggressive rate hikes have been pared back.

The collapse of president Trump’s healthcare plan last week has also dented hopes that the administration can enact equally ambitious tax reforms. While most analysts expect at least some kind of corporate tax cuts, the difficulties in cobbling together a Republican legislative majority has dented the gains of the Russell 2000 index of small companies — which tend to be more domestic and less able to lower their effective tax burden through overseas arms.

US banks had been big beneficiaries of higher interest rate expectations — which boosts their earnings — and a regulatory rollback. The administration is still expected to reduce the post-crisis regulatory burden, which in some cases does not need legislative action, but the froth has recently been blown off bank shares.

Many investors and analysts were convinced that aggressive government spending, firmer economic growth, a more decisive Federal Reserve and budding inflationary pressures would conspire to end the 30-year bond bull market.

As a result, the consensus estimate of strategists polled by Bloomberg is for the US 10-year Treasury yield to end 2017 at nearly 3 per cent. Instead, the widely followed borrowing benchmark has mostly traded sideways since the turn of the year, and has this month dipped back down to under 2.4 per cent.

Even fund managers that were sceptical that the Trump administration would be able to enact most of its reforms predicted that the unorthodox approach of the new US president would lead to more market nervousness and bouts of volatility. But the Vix index — Wall Street’s most famous “fear gauge” — has been tranquil for most of the year, despite all the noise in Washington.

But some post-election losers have regained their footing lately. US technology companies lagged behind the Trump rally, partly on concerns over potential trade wars and restrictive immigration policies that would hurt an industry that depends on the global talent pool. However, the sector is the best performer of the S&P 500 this year, gaining more than 11 per cent even after a slight dip over the past week.

The Mexican peso — initially the biggest victim of president Trump’s rhetoric and policy promises — has also enjoyed a strong turnround, rallying more than 16 per cent since the record low touched around the time of Mr Trump’s inauguration in late January.

Fund managers and analysts doubt that the healthcare debacle will prove a big turning point, pointing to signs that economic data remains firm and the likelihood of some kind of tax reform package, if not in 2017 then in 2018. Nonetheless, it is clear that markets have been more in flux this month, with a change in leadership and laggards.