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The winners and losers in the stock market under Trump's first budget

U.S. President Donald Trump attends a meeting on healthcare with Elias Seife of Florida and Brittany Ivey of Georgia in the Roosevelt Room of the White House on March 13, 2017 in Washington, D.C.

Pool/Getty Images

Globe editors have posted this research report with permission of CMC Markets. This should not be construed as an endorsement of the report's recommendations. For more on The Globe's disclaimers please read here.

Stock markets have soared since the U.S. election. The Dow, for example, has rallied from an overnight low on election night near 17,500 to a recent high just above 21,000. The strength of this advance indicates that traders are expecting big things from President Donald Trump.

So far the president has made a number of broad policy statements related to tax reform, infrastructure spending, health care reform and other areas that the street has seen as potentially boosting corporate earnings. This week, however, the focus shifts from sweeping statements to the details of how much and when as President Trump is expected to send his first budget request to Congress.

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The street has started to price the new administration to perfection, expecting that they would move forward on all areas quickly with limited opposition. Even if all goes well, the speed of government is glacial compared with the speed of markets; it could take a year or more to get an initiative through the process and money flowing.

This week the rubber hits the road and reality may start to set in. Recent reports suggest the administration is likely to focus on reforming Obamacare first with an increase in military spending to be offset by deep cuts to the Environmental Protection Agency and other departments. Previous reports have suggested Congress is hoping to sort out tax reform by August but this could slip and the biggest push on infrastructure could get pushed off to 2018. One of the big questions this week is whether traders have the patience to wait that long.

Changes in attitudes toward different industries

At times like this, it's important to remember that the stock market is a market of stocks and sectors, and that index performance measures the combined impact of moves across a number of stocks.

Through looking at sector performance, we can see which areas have come into favour or fallen out of favour since the election.

First looking at the eleven top level groups, the top performers since the Nov. 8 election have been financials, industrials and technology, while energy, utilities and consumer staples the worst performers. This suggests there has been a big inflow into sectors sensitive to the broad economy and momentum plays at the expense of late stage and defensive sectors.

Since the inauguration on Jan. 20, when President Trump took power and was able to start implementing policies, the top performing sector has been health care, which along with consumer staples has moved up the most in the rankings. Energy has remained the bottom performer with industrials falling the most in the rankings. This indicates that there has been a reshuffling and reversal with traders figuring out that the initial spike in industrials and the initial pressure on health and staples was overdone.

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Looking at the 116 subgroups offers additional insights into what traders have been thinking.

Since the election, the top five groups have been:

  1. Investment banking and brokerage
  2. Trading companies and distributors
  3. Diversified banks
  4. Regional banks
  5. Railroads

Since the election, the bottom five groups have been:

  1. Apparel, accessories and luxury goods
  2. Department stores
  3. metal and glass containers
  4. General merchandise stores
  5. Brewers

This action indicates that financial services have attracted the most interest. The gains in railroads are also a positive sign as they show gains for transports have confirmed gains for industrials. It's not enough to make goods, they also have to be moved to market. The weakness in retailers and consumer products reflects a weak Christmas selling season in the U.S.

Since the inauguration, the top five groups have been:

  1. Tires and rubber
  2. Homebuilding
  3. Technology hardware, storage and peripherals
  4. Home entertainment software
  5. Health care facilities

Since the inauguration, the bottom five groups have been:

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  1. Food retail
  2. Oil and gas drilling
  3. Office services and supplies
  4. Specialized consumer services
  5. Oil and gas exploration and production

Based on this, it appears recent leadership has shifted to a more broad based group of sectors. Energy markets have underperformed with the oil price flattening out near $50 and energy stocks digesting the big moves the staged up off their February 2016 lows.

Since the inauguration, the groups that have moved the farthest up the rankings include:

  • Health care supplies
  • Health care facilities
  • Housewares and specialties
  • Department stores
  • Distillers and vintners

Since the inauguration, the groups that have moved the farthest down the rankings include:

  • Oil and gas drilling
  • Human resource and employment services
  • Household appliances
  • Cable and satellite
  • Computer and electronics retail

The rebound in health care related groups indicates that the initial post-election selloff was overdone and reconsidered. This could indicate that the Street believes repealing and replacing could be more difficult than initially thought and that the negative impact of changes may not be as bad for some groups as initially expected. Groups falling in the ratings are broadly based.

It's interesting that cable and satellite, a sector struggling with structural change as consumers cut the cord and go to streaming, has resumed its decline even with the change in administration. This reminds us that politicians can only do so much and that while they can have an impact in some areas for a time, they can't necessarily stop the larger trends.

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