• The growth story is dead.

    To understand that the growth story around Trump is dead, we only need to look at the $RUJ -$RUO ratio.

    RUJ tracks small public U.S. companies whose earnings are expected to grow at an above-average rate relative to the market (The equivalent ETF is IWO)
    RUO tracks small caps by value (the equivalent ETF is IWM)

    We can see below that from Trump's election, the growth story was the leading narrative. However, since Trump's inauguration, this narrative has lost all of the initial impetus.



    I believe that what happened since January 2017 is linked to the Fed: The Fed has taken for granted that the new administration will cut both taxes and spending, which basically help the US economy. The Fed has used this "inflationary and healthier economy" narrative as a pretext to raise rates. This has attracted money from the sales of US Treasuries into the largest US stocks. Foreign Index investors have also been buying the largest ETFs helping the S&P500 and the Nasdaq moving higher.



    We are now only two weeks from another Fed hike. We can see below three panels: IWM, the IWM:SPY ratio and the S&P500, I also drew some arrow:Blue arrows show when small caps are underperforming while trending higher. We had such underperformance just two weeks ahead of the Fed March rate hike.



    The largest stocks have still been attracting money, while small caps are still under general selling pressure. As a side story, FB/GOOG generate their earnings through publicity. This means that ultimately these companies are retail related: if their client's sales activities do not support the cost of advertisement, then advertising budgets will be cut. AAPL is an iphone business, but iphone is becoming a commodity and AAPL experienced 14% reduced sales in China last March compared to one year ago. AMZN has a P/E ratio of 187.





    In the context of the coming Fed decision, the US$/Euro seems ready to break their respective resistance/support levels.





    On the other hand, gold is attracting money here. This is relatively strange since markets are expecting a rate hike. The reason might be either Chinese debt fear or NK military action.



    Conclusions:

    The overall US market issues are now hanging on investor's confidence regarding a potential tax deal that the Trump administration could pass through Congress. In the meantime, Trump is now back to the White House. After some tremendously successful finger pointing during the NATO and the G7 meetings, the US political circus will regain the headlines.

    In the current context, the best is to short the small caps.