A number of blue-chip stocks are sliding lower on Tuesday as the post-election “Trump-flation” trade is being reversed after President-elect Donald Trump — in an interview released over the holiday weekend — said the U.S. dollar was too strong.
Strength in the greenback was the lynchpin of the three-month rally Wall Street has enjoyed, powered by optimism over Trump’s fiscal stimulus plans and worries his “America first” policies would weigh on export dependent countries like China and Mexico. Thus, his willingness to talk down the dollar (a “verbal intervention” normally reversed for the mercantilists in Asian countries like Japan and South Korea) is resulting in painful trade unwinds as post-election dynamics are flipped on their heads:
Stocks down, bonds up, gold up and volatility up.
This is happening at the sector level, too. Blue-chip financial stocks — which have been the leaders of the post-election uptrend on deregulation and net interest margin hopes associated with the rise in long-term yields — are breaking down hard out of multi-month rallies. As the dollar weakens, a safe-haven bid is going into Treasury bonds, pushing down yields, and thus, the main reasons folks have been piling into these stocks.
Some disappointment in fourth-quarter earnings results isn’t helping as well. Here are five to sell: