The US banking sector had a bumpy ride recently, almost as rocky as the mountain of expectations surrounding the Trump trade.

Ben McLannahan of the Financial Times reviews this intriguing relationship from the inside, via the operations of some top banking executives.

See our propositions at the end of this post. We take a wider macro-financial stance by assessing some relationships between banks, the yield curve, public policies, the USD and the equity market.

Please consider ‘Wall St’s top bankers sell own groups’ shares as Trump rally reverses’ by the Financial Times:
(emphasis added)

“Wall Street analysts have been urging investors all year to buy stocks in the big US banks. But Wall Street itself is not listening.
Executives and board members at the top six US banks have been consistent sellers of their own banks’ shares this year, according to an Financial Times analysis of disclosures tracked by Bloomberg.


“Some observers said the sales could have been driven by disenchantment with the economic programme of Donald Trump, the US president, who rode to power partly on a promise of higher interest rates, lower taxes and lighter regulation. That rhetoric helped propel bank stocks sharply higher in the weeks after the election last November.
But a series of setbacks on the policy front have since cast doubt on those objectives, bringing bank stocks back down. On Friday, the KBW Banks index — a grouping of two dozen of the biggest Wall Street and regional banks — was just 3 per cent higher so far this year. Bank stocks have become “a barometer” for the success or failure of the Trump administration’s policies, said Robert Smalley, credit analyst at UBS in New York.”


“David Hendler, founder and principal at Viola Risk Advisors, said recent share sales by executives at the big retail banks, in particular, could be smart, as some consumer portfolios are showing signs of strain. Credit cards delinquencies are rising, while car loans have been looking fragile for a while. “Credit risk is ricocheting back as a legitimate concern after years of hibernation,” he said, adding that investment banking divisions were doing little to take up the slack.”


So, US bank execs ponder insider credit strain as the Trump rally reverses.
Sounds familiar? Smart to ‘take some chips off the table’ ?


We suggest :

  • McLannahan and Smalley are right: the Trump trade is passé and the post-election banking rally has been short lived.
  • Credit quality has certainly to do with it.
  • But banks did actually capture something else than the Trump trade itself.
  • The relative performance of the banking sector tracks the evolution of the yield curve.
  • Interestingly enough, from this perspective, monetary and fiscal policies somewhat neutralized as the yield curve merely blipped during this period.
  • Our analysis suggests that economic expectations and surprises played a major role on the USD:
    • After having been supportive in a first stage, the normalisation of the Trump trade led to a significant decline of the USD …
    • … 1.1850 and 1.25 being respectively identified as potential peak and undershoot levels vs. the EUR.

As the correlation between currencies and US equities flip flopped, we believe that the weakness of the USD played an important role behind the recent strength of US equities.

If these relationships hold true, one should track the USD and the yield curve as powerful market drivers.

More to come.


  1. Andre Huwyler 7 years ago

    Estimado Jacques, first things first: Welcome back!

    Thank you for sharing this and I think there is absolutely nothing wrong with your question: Smart to ‘take some chips off the table’ ?

    • Jacques 7 years ago

      Good to read you André.
      Agreed. I have focused on several topics that could support your assessment, in particular the valuation boost provided by the USD.
      More to come, thanks for commenting.

  2. Sébastien Gyger 7 years ago

    Dear Jacques,

    Thank you for your very clear and forward-looking analysis.

    USD has just broken below its multi-year trading range… and no technical support in sight.
    Numerous and massive implications for asset allocation & portfolio construction shall the USD weaken further from here.

    Best regards,

    • Jacques 7 years ago

      Thank you Sébastien, very nice reading you on the blog.

      I couldn’t agree more – apologies for those expecting some harder debate here 🙂
      Yet I don’t see the breakout you’re referring to, at least for the time being.

      I would give some room of manoeuvre around your preferred technical support, as I believe the USD captures a lot of noise surrounding economic expectations.
      The current weakness of the USD looks compounded by disenchanted US economic expectations and euphoric European ones. In other words, the EURUSD could well be overshooting some of the cheap guidance that characterized both sides of the Atlantic recently. By trying to quantify this using simple time series, I came to a pretty wide range of 1.18 – 1.25 vs EUR.

      As the saying goes however: it is difficult to make predictions, especially about the future. That was probably meant for FX markets.

      Thank you for commenting and sharing,


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