Markets steadied this afternoon as selling pressure following Donald Trump’s surprise election win in the US gave way to a big rotation from defensive to cyclical stocks.
Gold miners and cyclical US construction stocks are in favour as US markets open while consumer staples, energy and utilities are under pressure.
After nervy trading early on, market moves since the early sell-off this morning imply a fairly bullish assessment of global economic prospects after Trump’s victory. And US stocks flirted with gains as markets opened in New York despite futures earlier indicating heavy falls.
CONSTRUCTION AND INFRASTRUCTURE
Big moves in US-focused construction and infrastructure stocks in London are one indicator that investors appear to be positioning for a more ‘risk-on’ environment. Heavy equipment hire specialist Ashtead (AHT) gained more than 10%, building materials supplier CRH (CRH) gained 8% and steel galvanising business Hill & Smith (HILS) traded 6% higher. Both have significant operations in the US.
Comments in Trump’s victory speech appear to back up this view.
‘We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals,’ said Trump soon after the result.
‘We’re going to rebuild our infrastructure which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.’
GOLD STOCKS GAIN
A rally in gold stocks might also be an indicator of higher-than-expected growth and inflation following Trump’s election, rather than a classic fear trade. Mexican gold miner Fresnillo is the biggest gainer in London today, up almost 10%.
Other big moves in gold mining include Egypt-focused Centamin (CEY) and Randgold Resources (RRS), which has most of its assets in Africa. Each is up more than 7%.
President Elect Trump said the US economy would grow twice as fast as it is currently under his leadership.
If achieved, that scenario would put upward pressure on inflation and interest rates.
INTEREST RATE HIKE BACK ON
Expectations of a December interest rate increase by the Federal Reserve are now 80%, after falling to around 50% immediately after the result.
Health care stocks are the one defensive sector gaining rather than losing ground today. Stocks including speciality drug supplier Shire (SHP), GlaxoSmithKline (GSK) and Astrazeneca (AZN) are gaining mainly because Hillary Clinton lost, rather than because Trump one.
Clinton had taken a more aggressive stance on reducing drug prices in the US compared to Trump.
UTILITIES AND BOND PROXIES DOWN
Elsewhere, utilities are another defensive sector losing ground as investors rotate from safe investments to riskier ones.
SSE (SSE) is the biggest utilities loser on the FTSE 100 today while the much larger National Grid (NG.) is also weighing heavily on the blue chip benchmark.
As well as potentially higher growth and inflation, markets could also be pricing in trade tariffs and greater proctectionism, according to Russ Mould, research director at AJ Bell Youinvest.
‘Tariffs and protectionism are inherently inflationary,’ says Mould.
‘Rolling back the disinflation prompted by two decades of global supply chain management would spook bond markets and potentially mean central banks have to take interest rates higher more quickly than expected.
‘The Fed may therefore pause in December but could find itself playing catch-up, if Trump does impose tariffs on imports from Asia, Latin America and Europe - a prospect which is likely to weight on emerging market stocks particularly heavily today.’
