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Here's your investing playbook if the 'Trump trade' unwinds; Watch out Goldman shareholders

Dollar
Mohamed Abd El Ghany | Reuters

Two hallmarks of the "Trump trade" were rising interest rates and a strong dollar as expectations for tax cuts and infrastructure spending under the new president caused traders to bet on reflation after a long period of stagnant growth.

But that trade is starting to unwind as the Trump policy dreams meet the reality of the sausage making in Washington. It didn't help things that the president-elect failed to detail his growth plan for the economy in his news conference Wednesday.

Here's the U.S. dollar index surging since the election and then topping out as the new year began.


(Source: FactSet)

Here's the yield on the U.S. 10-year Treasury yield doing the same thing.


(Source: FactSet)

"Trump's comments bashing some industries [and] lack of detail on his tax plans" are causing the trade to unwind, said Peter Boockvar, chief market analyst at The Lindsey Group. "Bullishness [in the dollar] got way too extreme."

So how do you capitalize on this reversal?

Using hedge fund analytics tool Kensho, we found 22 times in the last decade when the dollar and rates experienced modest 2 percent declines in one month together.

Here's what happened to the Dow Jones industrial average, gold and oil, on average, during those one-month periods:



We've already seen this happening this week as the Dow stalled short of 20,000 and gold surged.

Here were the three best Dow performers, on average:


Here were the three worst Dow performers, on average:


Goldman Sachs, which has seen many of its alumni nominated for the Trump administration, is up by more than a third since his election. The stock, which was lower in Thursday trading, is the top casualty when both rates and the dollar decline.

And here were the two best- and worst-performing S&P 500 sectors, on average:


So if the Trump trade unwinds, this is your playbook, if history is any guide.

(Note: As a proxy for a decline in rates in our search, we used a 2 percent, one-month increase in the iShares 20+ Year Treasury ETF.)


Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.