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US utilities shares were on track for their best week since before the shock election of Donald Trump as the reflation trade loses some of its lustre.

The S&P 500 utilities sector was poised to log a 3.3 per cent rally this week, the sharpest rise since late September.

The upward momentum has come as the “outlook for US fiscal stimulus has diminished,” said Dennis DeBusschere, head of portfolio strategy at Evercore ISI.

Steven Mnuchin, the US Treasury secretary, said on Thursday in his first televised interview since he was confirmed that business tax reform would be the Trump administration’s top priority, aiming to push measures through Congress by August.

However, political analysts have begun speculating that other measures, including the large infrastructure spending programme and changes to healthcare policy, may take much longer than investors initially expected.

“The S&P continues to rise, but the change in market leadership suggests investors’ growth expectations have weakened,” said Mr DeBusschere.

Utilities are seen as defensive shares that are favoured during times of financial or economic tumult because of their steady dividends. The sector was the second-best performer on the S&P 500 leading up to Mr Trump’s election in 2016 as the Federal Reserve was forced to hold back on rate increases on the back of patchy economic data.

But utilities have under-performed since then, rising 3.8 since the election, compared with a 10.1 per cent increase for the S&P 500. Economic data have brightened considerably since last November — Citigroup’s economic surprise index last week hit its highest point since 2014, indicating data have consistently topped forecasts.

Investors have also bet that Mr Trump’s campaign promise to unleash a vast infrastructure programme and cut the corporate tax rate would stoke higher levels inflation, which lessen the appeal of defensives while polishing the allure of growth-oriented stocks.

Mr DeBusschere reckons that the shift towards defensive shares is unlikely to last, unless the economic outlook dims once again.

“Barring a slowdown in growth prospects, it is hard to see a reason for a sustained rotation into defensives,” he said.

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