Wednesday, December 21, 2016

Thoughts on Post-Election Industry Movement

The above table from shows the post-election percentage change in the largest sector ETFs.  Here are some thoughts on why certain sectors have rallied or sold off.

1.) There has been talk of repealing or scaling back Dodd-Frank, which could potentially be a huge boon to the financial industry.  In addition, the Fed is now raising interest rates, which increases the interest rate spread, which should increase bank earnings. 

2.) Industrials and basic materials are rallying in hopes of a large infrastructure bill.

3.) Trump has appointed a very pro-oil cabinet: Perry at the Department of Energy and Rex Tillerson as Secretary of State.  In addition, OPEC has agreed to limit production.  Both these facts explain the XLE's recent rally.   

4.) There is a great deal of concern underlying health-care policy.  The pending ACA repeal will put the insurance markets on very tenuous footing.  In addition, there is growing concern that Congress will become more aggressive about drug prices (see this story from today's NYTimes).   

5.) Rising interest rates are a net negative for utilities.

6.) The 10 largest consumer staple stocks are multi-national companies.  The strong dollar and Trump's anti-trade talk would be a net negative for this sector.