Trump rally optimism is fading fast, Citigroup says

Published: Jan 17, 2017 10:45 a.m. ET
By Joseph Adinolfi
Markets reporter

Investors are increasingly skeptical of President-elect Donald Trump’s plans to enact pro-growth economic policies, according to a proprietary gauge of investor sentiment compiled by Citigroup Inc.

The News Implied Sentiment Indicator, or NISI, has reversed most of its postelection rise, as the chart from the Citigroup team of macro analysts illustrates:

Bloomberg and Citigroup Research

The index aims to capture investor sentiment by measuring the number of Bloomberg News stories containing the keywords “bullish” and “bearish.” The index is correlated to risk assets, as well as Citigroup’s Global Risk Aversion Macro Index, or GRAMI, the analysts said. Occasionally, turning points in the NISI precipitate moves corresponding moves in stocks, they said.

The expectation that Trump would be able to follow through on promises to roll out a massive infrastructure-spending bill, cut corporate taxes, and repeal a broad swath of back of Wall Street regulations, likely helped spark the rally, the strategists said.

However, the index has swung back to neutral in the opening weeks of 2017. This suggest that the S&P 500 index SPX, -0.15% could retreat to around 2,200 in the near term, the strategists said. It’s presently trading at 2,266.

“Is some of the optimism fuelled by Trump fading perhaps?,” The Citigroup analysts said. “For what it’s worth, prediction markets are pricing in a 50% probability that Trump‎ won’t finish out the term in office.”

According to recent polls, Trump’s approval ratings have fallen since the election. Surveys from CNN/ORC and ABC News/Washington Post released on Tuesday showed a majority of Americans harbor an unfavorable view of the president-elect, Politico reported. Trump will be sworn in to office on Friday.

In the market, several popular “Trump trades” have reversed or stalled in recent weeks. Gold prices GLD, +1.24% have risen about 8% from their postelection lows, the dollar DXY, -1.08% is about 3% softer and the Dow Jones Industrial Average DJIA, -0.09% has retreated after coming within a hair’s breadth of the 20,000 milestone.

Trump rattled markets on Tuesday after he said a congressional Republican proposal for a border-tax adjustment was “too complicated.” He also said he believes more countries will leave the European Union in the coming years, and that the one-China policy, which counts Taiwan as an autonomous region of the People’s Republic of China, is up for negotiation. His comments were published by The Wall Street Journal over the weekend.

The tech-heavy Nasdaq Composite Index COMP, -0.40% was on track for its worst daily performance of the year.

http://www.marketwatch.com/story/tru...ays-2017-01-17