After almost a year the US 10 year yield is above the S&P 500 dividend yield, see below. The recent change has been due to Trump’s election and expectations of higher growth/inflation.
Since Trump’s victory investors have aggressively rotated out of defensive bond proxy sectors (Utilities, Telecom, and Staples) and into cyclical sectors (Financials, Industrials and Materials). Although there are no details on Trump’s planned policies the market is forward looking and currently screaming something will get done.
Yesterday’s blog posted covered the increased likelihood of fiscal stimulus in the US thanks to the Republican election sweep, see here. Markets are expecting Trump’s fiscal policies to increase growth and inflation as can be seen in the bond market.
Donald Trump won the Presidency and Republicans managed a clean sweep of the House and the Senate in an election which defied polls and forecasts. A clean sweep like this is an exception rather than the norm in U.S. politics. In fact since 1965 there have only been 18 years where a single party controlled both the presidency and both houses of Congress. The following chart from Bank of America shows which presidents have had this advantage:
With it being Election Day today let’s look back and see how US assets performed under past administrations. The following chart from Bank of America Merrill Lynch breaks down the annualized real returns of an equal weighted basket of US equities and corporate bonds.
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