The 'Trump portfolio' is starting to slip — and it may be time for investors to bail

Are the so-called "Trump trades" cooling off?

Investors who are long financial stocks, materials stocks and small caps — and short tech stocks and gold — enjoyed huge gains following Donald Trump's election.

This hypothetical portfolio (which is equally long the XLF, XLB and IWM, and equally short the XLK and GLD, such that the portfolio is neither long nor short overall) showed a loss of about 8 percent through the beginning of November. It then experienced a huge surge following Trump's surprise win, and finished 2016 with a substantial gain.

To be sure, this "portfolio" has been specifically designed post hoc to capitalize on the post-Trump market move. His win was great news for materials stocks due to his infrastructure plans, for financial stocks due to the promise of less regulation and of greater yields spurred by inflation, and for the less internally exposed small caps in particular due to the restrictive trade policies he has proposed. Meanwhile, the promise of greater cyclical growth meant investors saw less need to own tech stocks, and gold has been a victim of investor optimism and a rising dollar.

Over the past three weeks, however, this "Trump portfolio" has given back more than a quarter of its gains.


"There's no doubt the Trump trade has stalled completely, basically since December 15," macro strategist Boris Schlossberg of BK Asset Management said Tuesday on CNBC's "Trading Nation." "The markets now want to see performance. They've heard promises — now they want to see policy."

"If he gets quagmired in politics, I think a lot of the Trump trade is going to unwind very quickly," Schlossberg added. "If, however, his laser focus is on economic reform, these Trump trades are going to pick up steam once again. So it's very much going to be up to him as to whether the Trump trade continues or not over the next month or two."

The first clue, he said, could come at Wednesday's much-awaited press conference.

Meanwhile, Piper Jaffray technical analyst Craig Johnson says he notices "a reversion back to where we began before the Trump trade started to unfold."

When it comes to the hot financial and materials stocks, "I would be trimming some positions around the edges," Johnson said Tuesday on "Trading Nation."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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