Riding the Trump rally in 2017

With US equities running upwards for the past 7 years it seems incredible that anyone out there would dare predict another bull market for 2017. However, one of the after effects of the Trump victory has been just that; higher expectations and optimism. Does it make sense?

I will write the following with a sense of déjà vu. During the same period last year, US equity valuations and economic data appeared to have reached a threshold; further upside was improbable. As a countermeasure to this view I decided to remain out of US equities throughout most of the year. Unfortunately, this meant that I lost out on 11 percent year to date.

Will 2017 be any different? I still refuse to be dragged into investments by the hype that surrounds them, and investment still has to make sense. And, while in 2016 I did not make any money on US stocks, by avoiding the risk I did not lose any either.

2016 turned out to be an incredibly complex year anyway. Nothing turned out as it was supposed to. So many crucial events went the wrong way, BREXIT, Donald trump, Italy. Yet markets are still going up. Thus when the drinks start rolling out next week, celebrate, it is not the time to question if the market is right, why the polls were wrong and who are the establishment. 2017 is upon us and I am not so confident that it is possible for everything to go the wrong way and still get positive returns for ever.

The arguments that support the Trump rally are mainly based on a rising interest rate scenario and a new spending boom by the United states. These ideas may offer attractive returns in 2017, however, investors have to keep in mind that nothing goes up forever.

A rising interest rate scenario benefits mostly banks as they are able to reprice their lending immediately but can hold on to low paying deposits. Bank shares have already soared in anticipation and any hints of an acceleration in rate hikes, through Fed policy or inflation data, will drive prices higher.

The top picks would probably be the large banks. JP Morgan, Bank of America and Citigroup. Bank of America is especially well positioned with nearly $450 billion deposits.

If President Trump manages to get through congress a big infrastructure spending package, that would spell a huge boost to short-term economic growth. The main winners in this scenario would obviously be the US building and construction companies. Companies like Vulcan materials and Home Depot would be at the forefront to profit.