Natixis Canada Blog

Month: December 2016


“Trump” Rally Sparks Sector Rotation into Cyclical Stocks

Dennis Ruhl, Portfolio Manager, NexGen U.S. Growth Funds

U.S. equity markets rallied in November as Donald Trump unexpectedly upset Hillary Clinton in the 2016 U.S. presidential election. Additionally, the Republican Party’s sweep of Congress boosted investor sentiment. The “Trump” rally propelled the S&P 500 Index to an all-time high of 2,213.35* on November 25. Since President-elect Trump’s initial policy proposals are anticipated to be pro-growth, bonds yields rose significantly and the U.S. dollar strengthened. Small-cap stocks, which derive the majority of their revenues in the U.S., were the clear winners in November. Small-cap stocks as measured by the Russell 2000 Index rose 11.2%*, dramatically outperforming large-cap stocks as represented by the S&P 500, which advanced 3.7%*. While the overall gain for the S&P 500 was relatively modest, a severe sector rotation occurred over the next several trading sessions.

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U.S. Equities Rally Post-Election

Donald Nesbitt & Mikhail Alkhazov, Ziegler Capital Management, Portfolio Managers of NexGen US Dividend Plus Funds

The U.S. Presidential election was center stage in November and what a show it was. Donald Trump’s victory over odds-on-favorite Hillary Clinton shocked the media and many political pundits that had given him little, if any, chance of winning. Conventional wisdom also held that financial markets would view a Trump victory as “disruptive” and a negative influence upon equities. Overnight equity markets initially sold-off significantly as early results indicated that Trump was leading the election but then quickly reversed and closed higher the following day.

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Canadian Bond Market Not Immune To Global Trends In November

 

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Bond Funds

The unexpected victory of Donald Trump in the U.S. presidential election not surprisingly led to considerable volatility in financial markets in November. While Trump’s campaign was filled with contradictory policy statements, the post-election market reaction focussed on expectations for an aggressively expansionist fiscal policy that would stimulate U.S. economic growth. While equity markets reacted favourably to the more optimistic outlook, bond markets were dismayed by the potential for substantially higher U.S. budget deficits and increased inflation. Global bond markets experienced sharply higher yields and lower bond prices. The Bloomberg Barclays Global Aggregate Bond Index, which measures investment grade bonds in 24 different markets, fell 4% in November, its worst monthly loss since its inception in 1990. The bond market selloff was exacerbated late in the month by both news of an OPEC agreement to cut oil production (and thereby raise oil prices) and musings by a potential U.S. Treasury Secretary that the U.S. government should start issuing 50-year bonds. Canadian bonds were not immune to the global trend, although they suffered less than some other markets. The FTSE TMX Canada Universe Bond Index returned -2.07% in the month.

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Canadian Preferred Share Market Unaffected By U.S. Presidential Election

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Preferred Share Fund

In contrast with most global financial markets during November, the Canadian preferred share market was mostly oblivious to the surprise victory of Donald Trump in the U.S. presidential election. While equity markets reacted favourably to the more optimistic outlook, bond markets were dismayed by the potential for substantially higher U.S. budget deficits and increased inflation, leading to sharply higher yields and lower bond prices. Preferred shares, though, followed their own course, with prices initially extending the strong rally of October. A sharp decline in preferred share prices in the middle of the month erased earlier gains, however, and the market was unable to recover over the balance of the period. A series of large new issues in quick succession was responsible for the mid-month weakness. The S&P/TSX Preferred Share Index returned -0.65% in November.

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