The 2016 version of the "Trump Trade" reversed completely, what about this time?

History always repeats itself. Whether in 2016 or 2024, after Trump's victory, the market often exhibits an instinctive "knee-jerk reaction": the performance of U.S. stocks and the U.S. dollar generally outperforms other assets.

At the dawn of "Trump 2.0," fund managers managing $565 billion in assets are, like last time, fully engaged in the "Trump trade," optimistic about the U.S. dollar, U.S. stocks, and small-cap stocks.

However, an article by Sherwood News on November 13 suggests that the "Trump trade" is more about the immediate market reaction following Trump's victory, rather than a sustainable, long-term investment strategy, and does not equate to "Trump investment." Yet, looking back at "Trump 1.0" (2016 to 2020), U.S. small-cap stocks, the U.S. dollar, and other assets performed poorly and did not rise as expected.

Currently, the market remains optimistic about the "Trump trade." But will the subsequent market developments reverse again this time like they did during the "Trump 1.0" period?

During the "1.0" period, the "Trump trade" ultimately ended in failure

In 2016, U.S. small-cap stocks led the market by 10% in the month following Trump's unexpected victory.

As time went on, U.S. small-cap stocks significantly lagged behind large-cap stocks (S&P 500) by more than 20% during the period from 2016 to the 2020 U.S. election date. Although Trump's tax cuts benefited domestic U.S. companies, small-cap stocks reacted rather tepidly, performing even worse than small-cap stocks in other developed markets.

From 2016 to 2020, the U.S. dollar did not perform strongly under the influence of the "Trump trade." Both the U.S. dollar index and the Bloomberg dollar index, which includes emerging market currencies, saw declines, contrary to initial market expectations.

Then there is the U.S. stock market. The article points out that U.S. stocks did indeed outperform the MSCI global market index after Trump's victory; however, this outperformance also occurred when Biden won, and during both terms of Obama.

The rise in U.S. stocks is not attributed to the "Trump trade," but rather resembles a "tech stock trade."

In contrast, the strong performance of the U.S. stock market is more due to the leadership of tech stocks, particularly the robust growth of the S&P 500 and Nasdaq 100 indices. The profitability of tech giants is the main reason for the long-term outperformance of the U.S. stock market compared to the global market, and this growth is more a result of technological innovation and globalization rather than Trump's policy initiatives. Even if Trump's tax reforms helped boost corporate profits, tech giants were not the primary beneficiaries.

The "Trump Trade" Returns in 2024, but This Does Not Equal "Trump Investment"

In 2024, fund managers managing $565 billion in assets are re-engaging in "Trump-related trades"—those trading strategies that were popular when Trump was elected in 2016, such as being bullish on the U.S. stock market, the dollar, and small-cap stocks.

A survey of global fund managers by Bank of America reflects the change in investor sentiment following the announcement of the U.S. election results. Currently, the surveyed fund managers still favor the "Trump trade," believing that U.S. stocks remain the top choice for the market in 2025.

At the same time, they believe the dollar is the best-performing currency in the foreign exchange market.

However, the article points out that the "Trump trade" should be called "reaction-to-Trump-winning trades," rather than "Trump investment."

Although the market typically reacts with a series of responses when Trump is elected, including strong performances from the dollar and small-cap U.S. stocks, these "Trump trades" are not long-term investment strategies but rather rely more on short-term market sentiment following Trump's victory.

The current situation is similar to that of 2016, but will the market reaction in 2024 be sustainable?