RBC on Trump – the 2017 playbook

December 5, 2016
2017 Outlook – The Trump Playbook


greg blotnick rbc.png
Trump On Rally
Interest rates and inflation expectations have jumped over the past five months on the back of a tight labor market and the promise of Trump’s pro-growth policies. While the market’s recent rotation might seem abrupt, the S&P 500 is up only 3% since election day, leaving it with substantial potential upside.
2017 S&P 500 Price Target of 2,500
In our post-election report “A Whole New World – Biggest Paradigm Shift Since Reagan”, we wrote, “we believe that rising earnings and multiples will push equity returns into the double digits from our previous high-single-digit baseline.” Consistent with this view, we are initiating a 2017 price target of 2,500, representing 12.4% potential upside (before
dividends) from our current target of 2,225. See pages 4–5 for details.
EPS to Reaccelerate (2016: $119, 2017: $128, 2018: $140)
Following two years of near-zero growth, we expect profits to re-accelerate. A better
operating environment for Financials and Energy should contribute to faster growth in 2017 (+7.6%). 2018 EPS growth (+9.4%) assumes a 2–3% impact from Trump policies. This place holder for changes in taxes, regulation, and spending is quite modest, in our view, as an adjustment to corporate taxes alone could easily double this impact.

Upside to Multiples
Our 2017 year-end target is predicated on a 17.9x multiple on 2018E profits. 2016’s target
assumes 17.4x on 2017E EPS. We believe multiples will advance more quickly than earnings over the near term, as analysts wait for clarity on Trump policies before adjusting estimates. Markets Advance/Rotation in the Early Innings Small Caps and Financials are leading the broader market, up 10.6% and 12.3%, respectively, since the election. The market has been quick to reward low-P/E stocks and those with higher price volatility, as well as names with higher effective tax rates and more domestic business models.

10-year Treasury yields are up 53 bps since election day, 102 bps since July’s low. Bund and
JGB yields have not kept pace with Treasuries, resulting in a stronger dollar.


What traders are watching 11/28/2016 – Dave Lutz

Greg Blotnick – What traders are watching 11/28/2016 – per JonesTrading

TRUMP TRADES– Donald Trump’s economic plans received strong backing[] from the Organization for Economic Co-operation and Development on Monday, with the international organization predicting the president elect’s infrastructure planswould increase US growth, combat inequality and energize discouraged workers.

 greg blotnick.png

Boosting spending on infrastructure and improving education could relieve some of the burden on the US central bank to support the economy – Stanley Fischer, vice-chairman of the Federal Reserve Board, said[] well-targeted fiscal policies could lift America’s economic potential. About $500bn had gushed from equity funds and into bonds this year but last week the flows reversed[], with investors yanking more than $18bn from fixed-income vehicles and pouring $27.5bn into stocks, according to EPFR Global

greg blotnick 2.jpg

Industrial metals also remained red hot on hopes of strong demand for property and infrastructure investment in China and the United States – Chinese steel futures jumped over 6 percent, while iron ore futures also gained about six percent and zinc, used to galvanize steel, powered[] to a nine-year high on the London Metal Exchange – China’s top economic planner today approved[] a 247 billion-yuan ($36 billion) railway plan to link Beijing to neighboring cities as part of a government effort to improve connectivity around the nation’s capital.

greg blotnick 3.jpg

We need to look at month-end rebalancing.  Getting chatter $17-$27B of equities for SALE and Bonds to BUY by rebalancers.   “Largest since Oct 2015” says the Goldman.  Spoos + 5% MTD, TLT down almost 8% MTD

On Friday, investors turn their attention[] to the US for an update on the health of the country’s labour market. The US economy is expected to have created 175,000 jobs in November, from 161,000 the previous month. Economists expect the unemployment rate remained unchanged at 4.9 per cent, while average hourly earnings grew just 0.2 per cent in November, from the previous month, when they climbed 0.4 per cent.

MOONSHOT– Small company shares on Friday notch their longest winning streak in 20 years[] on a shortened Black Friday trading session. The Russell 2000 Index rose 0.4% in in the shortened session to book its 15th advance in row. This streak ties a run last seen in February 1996. The longest ever streak, 21, was hit back in 1988.  Investors are betting that President-elect Donald Trump will relax regulations, lower taxes and pump money into infrastructure projects. Such policies should benefit small caps more than there larger brethren.