Donald Trump’s election has caused the biggest dispersion among U.S. equities in almost eight years. Professional stock pickers couldn’t be happier.
Lockstep moves on the equities markets have been torn asunder while investors pour in cash as they dissect the potential implications from Trump policies. The Dow Jones Industrial Average and Russell 2000 Index have roared to records since his election, while technology-heavy indexes have slumped. In the S&P 500, the financial group’s 10 percent surge outpaced the worst-performing group -- utilities -- by almost 17 percentage points, a degree of divergence last seen in April 2009.
For active managers who’ve seen their reputation battered this year amid some of the tightest trading ranges in history, the split along industry lines represents an opportunity to put to work skills some say are growing arcane in the era of passive investing. At the same time, Tuesday brought with it a reminder in the danger of rushing to judgment -- bank shares slid as much as 1.7 percent, while tech stocks cut their post-election losses by almost half.
“You’re seeing money trying to chase the growth that’s perceived,” said Scott Colyer, chief executive officer of Advisors Asset Management in Monument, Colorado, where he oversees $18.5 billion. “This is a market where stock picking works and will reward people for buying some of the things that have been out of favor.”
The S&P 500 rose 0.3 percent to 2,171.56 at 1:47 p.m. in New York, pushing its advance since Nov. 8 to 1.5 percent as technology shares paced gains after lagging behind. The Dow slipped 0.1 percent from an all-time high, as rallies in JPMorgan Chase & Co. and Boeing Co. eased. The Nasdaq 100 Index jumped 1.1 percent, and the Russell 2000 Index slid 0.2 percent after an 8.7 percent climb took it to the first record since June 2015.
The pre-election jitters that pushed cash levels among money managers to near records gave way to bullish euphoria as investors added more than $14 billion to the biggest exchange-traded fund tracking the S&P 500 in the past week. That the stock market is suddenly making distinctions between winners and losers is a bonus to active managers who have seen money under their oversight shifted to passive ETFs and mutual funds that have outperformed for most of the year.
What’s unusual about the level of dispersion within the equity market since the election is that recent instances of such disparity have come when the market’s been falling. The degree now being seen last occurred during the height of the financial crisis and the bottom of the dot-com bust 16 years ago. Most recently, measures of dispersion jumped during the selloff after Brexit, as the S&P 500 plunged at the start of the year and during a correction in August 2015.
“This stands in contrast to the behavior following prior macro events over the last 18 months that were accompanied with correlations spiking in their aftermath,” analysts at Strategas Research Partners LLC wrote in a note to clients Tuesday. “Historically, declining correlations are consistent with a more supportive market backdrop.”
Investors seem to agree, as they bolstered the SPDR S&P 500 ETF since Tuesday with the biggest five days of inflows since September 2015. The $14 billion surge was more than three times the net amount they had invested from the start of the year through the election.
Flows into funds tracking specific industries showed enthusiasm for financial and health-care companies. More than $2 billion was added to the SPDR exchange-traded fund tracking financial companies on Thursday, the biggest single-day inflow in the product’s history. A fund tracking health care set a simultaneous record with more than $1 billion added the same day.
The biggest winners and losers since Trump’s win were reversing roles today, with banks falling for the first time in seven sessions as bond yields retreated, while Alphabet Inc. and Microsoft Corp. added at least 1.7 percent to pace the tech rebound. Utilities rose after a four-day rout and energy producers climbed as crude surged nearly 5 percent.
“Many people were surprised by the market reaction to the election, but now portfolio managers are starting to focus more on where potential investment opportunities may be with a Trump administration,” said Ross Yarrow, director of U.S. Equities at Robert W. Baird & Co. in London. There has been “lots of chatter of fiscal stimulus and tax reform, but there are still a lot of moving parts and no firm details.”
The main U.S. equity benchmark gained 3.8 percent last week on wagers Trump will enact a pro-business agenda, including loosening regulations and boosting infrastructure spending. The president-elect’s appointment of Republican National Committee Chairman Reince Priebus as his White House chief of staff signaled a willingness to work with GOP lawmakers to pass significant legislation, though the specifics of the administration’s near-term agenda remain open to speculation.
Investors are also considering what a Trump presidency might mean for Federal Reserve policy and the path for interest rates. Richmond Fed President Jeffrey Lacker said yesterday that easier fiscal policy may require higher rates, but it’s too early to react to potential policy changes by the incoming administration. Odds for an increase in borrowing costs next month have risen to 94 percent from 80 percent a week ago.
This article was provided by Bloomberg News.