Monday, January 30, 2017

We Begin the First 100 Days

Monday, January 30, 2017 - Ever since Franklin D. Roosevelt assumed his role as the 32nd President of the United States in March of 1933, each subsequent presidency has often been defined and judged by the actions they take during their first 100 days in office. FDR inherited a nation that was mired in the depths of the Great Depression. Upon assuming office, FDR immediately used the powers of the presidency to undo certain policies of his predecessor and steer the country into a new direction. 15 landmark bills were passed during FDR's first 100 days that laid the groundwork for his entire presidency. While FDR's circumstances were unique, the legacy of the first 100 days has endured, as a period for a new president to take swift and decisive actions to reshape the country according to his or her vision. This transition period is now often regarded as a measure of presidential effectiveness and a barometer of the policy direction the country will undergo with each new president.

Accordingly, the first week of Trump's presidency has been subject to intense scrutiny. Similar to FDR, albeit for different reasons, Trump has taken office during a period of widespread uncertainty. This uncertainty has kept the markets on edge since November's election, as investors have awaited a clear policy direction from our new administration. The uncertainty that accompanied the Trump administration began to abate this week, during which Trump acted on several of his campaign pledges on trade, regulation, immigration and foreign policy. As the priorities of Trump's administration have begun to emerge, investors are now assessing the areas of the economy that appear poised to benefit from our new President.

The major benchmarks all registered new highs thanks to last week's emerging policy clarity, positive earnings reports, and continued hope for faster economic growth. Most notably, the Dow Jones Industrial Average broke through 20,000 milestone for the first time in its 120 year history. Not surprisingly, the Dow's index-tracking counterpart, the SPDR Dow Jones Industrial Average ETF (DIA), was among the top asset-gathering funds for the week, attracting nearly $595M in inflows.

Trump's early executive actions indicate that deregulation and infrastructure spending will be priorities of his administration. This fueled optimism among investors for related sector and industry funds deemed to benefit from these policy shifts, such as the Materials Select Sector SPDR (XLB) and ALPS Alerian MLP ETF (AMLP). XLB and AMLP rose 3.4% and 3.5% respectively for the week.

Our Quant Movers list paints a similar picture, where the perceived winners and losers of the Trump rally have registered the largest movements. IJR, the iShares Core S&P Small Cap ETF, is currently the top rated fund according to our Quant model. This conforms to the prevailing sentiment that domestically focused small-cap companies will prosper under Trump's protectionist policies and relaxation of regulations. Similarly, our top two Quant movers on the week are from the financial sector, whose prospects appear bright under Trump's pro-growth, anti-regulatory policy shifts. The Financial Select Sector SPDR (XLF) and iShares U.S. Broker-Dealers ETF (IAI) saw large rises in their behavioral scores amid this improving sentiment and ended the week as our top Quant gainers. Conversely, sentiment continued to sour on defensive sectors, like utilities, with the Utilities Selector Sector SPDR (XLU) experiencing the largest drop in our Quant behavioral score.

As the Trump administration's priorities continue to crystallize during his first 100 days, so will investors' understanding of how to operate and where they should consider deploying capital under our new president.

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