This Hasn’t Happened Since 2007

So a lot of folks have observed that if you’re looking for a reason to not sell stocks on negative political headlines, one argument goes something like this: the market stopped believing in Trump’s agenda a long time ago, so while there are plenty of reasons to lighten up, “Trump” probably isn’t a good one.

We would object that “constitutional crisis” is always a good reason to reconsider risk assets and particularly stocks trading at ridiculous multiples, but the point is an interesting (and highly amusing) one.

Well, one popular “Trump trade” has of course been small caps and that optimism was readily apparent in spec positioning.

As the following chart quite clearly shows, there was rampant optimism following the election, optimism which was aggressively faded as Trump’s agenda stumbled (incidentally, the specs were burned horribly by the post-Macron rally after getting aggressively bearish which is why you see all that short covering at the end of April):

RussellMiniSpec

(BBG)

Well if you needed further evidence (that is, besides the flattening yield curve and the dollar erasing all of its post election gains) that recent Russia headlines dealt a grievous blow to “Trump trade” sentiment, look no further than the iShares Russell 2000 ETF, ticker “IWM,” which saw its largest weekly outflow since 2007 in the week to Friday:

Flows

(BBG)

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