Trump trade shows signs of fizzling out

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19 May, 2017

Trump trade shows signs of fizzling out

Beset by political scandals and investigations, the so far resilient Trump rally is beginning to shows that it may be fizzling out after the S&P 500 recently logged its biggest one-day drop since September and Wall Street's fear gauge, the VIX, spiked.

As reported on Reuters, hedge fund managers said they are looking beyond the United States for investment ideas as Donald Trump’s so-called 'honeymoon' period as US President appears to be drawing to a close.

In fact, former Federal Reserve chairman, Ben Bernanke, and Hedge fund managers appeared to express their surprise at just how long it has taken for markets to respond to controversies surrounding the Trump administration.

During a discussion on stage at SALT, a financial industry conference in Las Vegas on Wednesday, Mr Bernarke said: "It puzzles me that markets are very blasé about political risk until the last minute". Nevertheless, Mr Bernanke said he expects the Fed to keep hiking interest rate targets in the near term as the U.S. economy continues to grow.

The biggest political risk is heightened tensions between the US and North Korea, Mr Bernanke said. And while no major trade war has "blown up," that is also something "we have to keep a close eye on", he added.

As Bernanke was speaking, major US stock indexes were headed for their biggest declines in more than eight months after news spread that President Trump may have tried to interfere with a federal investigation.

Mr Trump's election victory initially caused stock markets to fall before rising again on the back of promises of relaxed regulations, tax reform and an infrastructure spending package.

However, Mr Trump's controversies looks as though they are catching up with him as markets looked less attractive this week. Furthermore, Mr Bernanke said he is not certain the Trump administration will accomplish infrastructure improvements and an overhaul of the U.S. tax code any time soon. Delivering on those early promises "will be harder now" he said, pointing to Mr Trump's low approval ratings.

Chief executive officer of DoubleLine Capital, Jeffrey Gundlach told managers at the event in Vegas that "non-U.S. investing is already starting to win. Time to ride that train".

Elsewhere, chief investment officer of Polygon's European Event-Driven fund, Reade Griffith said: "Europe is in the third inning while the United States is in the seventh or ninth inning depending on how successful President Trump is.

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