US Long Dated Treasuries Up Signaling Rising Inflation

$SPY

Donald Trump’s victory in the US Presidential race is driving mutual fund managers out of dividend stocks and into the shares of financial, industrial and materials companies that benefit from rising inflation.

Although inflation remains subdued by most measures, US longer-dated Treasury yields rose Thursday to their highest marks in more than 10 months after President Elect Trump emphasized infrastructure spending and other fiscal stimulus measures in his acceptance speech Wednesday.

Higher inflation lowers the relative value of bonds, with long-dated debt the most vulnerable to inflation expectations.

Increased spending on infrastructure will spur growth and expand the budget deficit.

Dividend (Aristocrat) stocks, seen as an alternative for income-focused investors given low bond yields, slumped in the wake of Donald Trump’s victory.

Utility stocks in the S&P 500 are down 6.1% since Tuesday’s close, while real estate companies are down 3.8% over the same frame.

Cyclical companies were cheap going into the election, and now the inflation trade is here to stay

The Trump Administration will be less likely to focus on regulations that have tamped down on bank profitability and led to more stringent lending practices.

The easing of regulations will make loans easier to get and banks more willing to lend to small businesses.

The S&P 500 bank index rose nearly 10% over the past 3 sessions and closed Friday at its highest mark since 22 July 2015.

Donald Trump’s promises to renegotiate trade agreements could also drive inflation higher by raising the cost of imported products, helping domestic materials producers such as United States Steel Corp (NYSE:X).

Fund managers were seen adding to small-cap infrastructure and defense companies. Also, expect to see more mergers and acquisition activity given Donald Trump’s repeated statements that regulations are holding back the broad economy.

Remember, there can be no growth without inflation.

Have a terrific weekend.

  Banks, bonds, businesses, dividend, income, inflation, infrastructure, loans, regulations, S&P 500, SPY, stocks, Treasuries, X, yield

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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