‘Trumpflation’ jitters boost US defensive sectors

Shares of US companies that are favoured for their juicy dividends shined on Wednesday, while financials pulled back, as some doubts were cast over the ‘Trumpflation’ trade.

The real estate and utilities sectors logged the largest advances at mid-day, rising by 0.9 per cent each. Both groups are generally sought after for their consistent dividends that mimic the stream of coupon payments provided by bonds.

They have lagged behind since Donald Trump’s election in November, with real estate climbing 1.9 per cent, and utilities rising 0.4 per cent against a 7.2 per cent gain for the S&P 500.

On the other end of the spectrum was a 1 per cent drop on Wednesday in the financial sector, the best performer since Mr Trump’s shock victory last year.

Investors have speculated Mr Trump’s fiscal and trade policies will boost both economic growth and inflation — something that is considered bullish for financial companies like banks, but bearish for utilities, real estate groups that tend to perform better with lower interest rates.

However, expectations for ‘Trumpflation’ have eased recently amid economic and policy doubts.

In another sign of that trend, Treasury bond yields that have soared since the election pulled back on Wednesday. Yields on the benchmark 10-year Treasury note fell as much as 7 basis points to 2.32 per cent by midday in New York, though the yield remains 50 bps higher since Donald Trump’s surprise election.

“The inflation and rate hike fears that drove Treasury yields up are replaced by doubt and uncertainty – for now,” said Kit Juckes, a Societe Generale analyst.

Among the factors that Wall Street has watched has been the January jobs released last week that pointed to a slowdown in wage growth, according to Dennis DeBusschere, head of portfolio strategy at Evercore ISI.

Goldman Sachs markets strategists also noted earlier this week that the optimism among US households that had spiked after the election, appeared to be “peaking”.

“The latest data for January suggest that the post-election optimism of households has begun to cool,” they said.