After the November 8 U.S. elections, the U.S. stock market witnessed a bull run pumped up by Trump’s pro infrastructure promises. But with the Republicans not managing to repeal the Affordable Healthcare Act despite their majority, the shares of infrastructure stocks are seeing a downward trend.
In a growing sign of worry for financial markets, slide in infrastructure and transportation shares along with the Trump trade running out of fuel have been a major headache for traders.
Although the Dow Jones Transportation Average, which is seen as a barometer of economic health, climbed up after Trump won the elections and reached its zenith on March 1, it plunged by 5%, in this month alone.
The share prices of steel companies, which also soared after the elctions fell sharply this week. The S&P 1500 construction and engineering index is down by 3.6%.
Fueled by Donald Trump’s promise of increased focus in infrastructure, tax reforms and reduced regulations, the stock market witnessed a bull run. But with Republicans unable to replace the Affordable Healthcare Act, despite having a majority in both houses, has raised investor concerns and questions are now being asked as to how soon Trump’s policies will see the light of day.
“Transports are the lifeblood of the economy; they are the unsung heroes of the bull market,” said Peter Kenny, a senior market strategist at Global Markets Advisory Group.
“They need to hold up in order to continue to provide validation to the broader trade, to the trade higher,” and went on to add, there is more room for downside for the transportation sector and infrastructure stocks, largely because of the earlier bull run.
Interestingly, the transportation index average held its ground above the key 8,970 mark, as per a Fibonacci retracement of its move from October to early March. If it were to slide further than 8,970 it will not find support at 8,900 which opens up a dropchute for it to touch the 8,760 area, which incidentally is another Fibonacci retracement.
“The transports are broken right now,” said Andre Bakhos, managing director at Janlyn Capital LLC. “We will be biding time along the way to create a consolidation or support level. Whether that starts around here or in the transports around 8,500 I don’t know.”
Although the share prices of steel companies have, to an extent, managed to rebound from Tuesday’s selloff they were still down for the month. The S&P 1500 steel index was down by 5% while U.S. Steel was down by almost 11%, so far.
The decline in infrastructure stocks could be tied down to a combination of profit-taking and other factors, including overestimation of benefits by investors, said Charles Bradford, president of Bradford Research, a research firm.
“Some of the stocks that ran up the most get almost no benefit from construction, like U.S. Steel… Yet that was one of the big names that some people are promoting as infrastructure plays,” said Bradford. “There’s an awful lot of bad information floating out, and a lot of it comes from Washington.”
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