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Revisiting the Trump trade

Saturday, October 26, 2024 15:05

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Preface: Explaining our market timing models

We maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don’t buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
Trend Model signal: Bullish (Last changed from “neutral” on 11-Oct-2024)*
Trading model: Bullish (Last changed from “neutral” on 15-Oct-2024)*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

The Trump trade

The Trump trade seems to be making a comeback in the markets. While the betting markets have seen Trump’s odds of winning rise and Harris’ odds fall, it has been marred by suspicions of manipulation (see articles in WSJ and Financial Times). Less difficult to manipulate are the factors in the financial markets, shown in the chart below. Each of these charts is designed so that a rising line denotes rising favourability for a Trump victory.

Trump Media & Technology Group: It’s a proxy for Trump enthusiasm as it’s the holding company for Truth Social, Trump’s social media vehicle.
Domestic Revenue stock ETF vs. S&P 500: One of Trump’s main platforms is to use tariffs to bring manufacturing back to the U.S.
Inflation Expectations: Trump’s tariff policies are expected to be inflationary.
Poland vs. Euro STOXX 50: Poland has been a surprise growth engine in the EU, but it neighbours Ukraine, and the relative performance of its market is a measure of Ukrainian anxiety.
Gasoline Price: Gasoline can be thought of as an anti-incumbent trade. Rising prices depress consumer sentiment and it’s negative for the incumbent.

Each has its idiosyncrasies, but taken as a whole, the Trump trade seems to be winning.

It’s time to consider the effects of Trump’s economic policies should he win the White House.

A focus on trade policy

The results of the latest BoA Global Fund Manager Survey could be setting the tone for the market’s reaction to the U.S. election. Respondents are most concerned about changes in trade policy as a result of the election.

In that context, it was stunning that Donald Trump, in an interview with Bloomberg editor in chief John Micklethwait, doubled down on his protectionist leanings and characterized “tariff” as “the most beautiful word in the dictionary”.

What are the effects of Trump’s economic policies should he win the White House?

The full post can be found here.

Source: http://humblestudentofthemarkets.blogspot.com/2024/10/revisiting-trump-trade.html

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Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world. Anyone can join. Anyone can contribute. Anyone can become informed about their world. "United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

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