A Trump Correction at Last?
Three key indicators of an inevitable correction are suddenly in place. The S&P 500 equity risk premium has made new post-crisis lows, Trump is acting “more presidential,” and we are detecting a strong shift away from months of skepticism toward a hint of capitulation. The ERP is mean-reverting to be sure, but the new lows don’t necessitate a strong correction as the mean itself is highly likely moving lower. Trump’s possible re-branding toward a gentler style – shifting away from an abrasive persona that has worked very well for him – is a risky move that may or may not work for him. We are very bullish, so we can’t criticize investors who suddenly agree with us – but short-term, such shifts in sentiment tend to be punished.