Trump Tax Cuts - Will This Make Volatility Great Again?

A quick Public Service Announcement:

Seems like yesterday when we Trump was elected and equities were off to the races - prompting one of the biggest market surprises we've witnessed in a long time.

The market formulated these two simple equations:

Trump = bad for stocks, good for volatility
Hilary = Good for stocks, bad for volatility


Believe it or not, yours truly did not buy this concept and was a major advocate at my previous firm that Trump would be good for stocks.

My belief spawned from the possibility of:

-Government spending
-Tax cuts

Plus - the belief in a Trump disaster was prevalent.

Oops again...

Turns out that Trump being president has not led to the end of the world as we know it (yet). After the election, markets have been ripping with a fervor unseen for years. Renowned hedge fund managers who had spoken out regarding the market from the short side have either been consistently wrong/stop out (best case scenario) or carried out in body bags reminiscent of the tech bubble of the 2000's (worst case scenario).

However, their logic was sound - the Trump presidency thus far had been marred by firings of his own cabinet, lack of progress in terms of failed bills and initiatives, and controversial racial undertones of his various social policies.

But it didn't matter.

Fast forward to yesterday!

Now, we finally have something concretely positive from the Donald. The Trump tax bill has been passed by the House and the Senate. Good news right? Hold on a second.

Trying to tie the corresponding price action to the actual news - we actually had a reversal of risks of sorts after the weekend gap. Surprised? Maybe don't be. This might be a situation where everybody is "in" from the long side.

The move was nothing huge but then again, large drawdowns usually start as nothing huge with everyone caught offsides. The long end of the curve continues to get bid as the curve continues to flatten. Definitely, something to keep an eye on if you're swimming neck deep in US equities for your portfolio.

Well, have a good day yall. Btw, be sure to be on the lookout for a very interesting post coming from Shawn for the TMM Top Trades of 2018!

Next Post »