Happy Friday and welcome to our weekly Portfolio Watch.

Many have been puzzled by the weakness in US markets towards the end of the week, with explanations largely pointing to an exhaustion of the Trump trade. This trade had been roaring across USD, USD bond yields, USD equities, and Crypto.

However, we observe that the core Trump bets—such as MicroStrategy, Tesla, Bitcoin, Palantir, and similar names—continue to surge. To us, this signals that the Trump bet is very much alive. In contrast, the broader equity sell-off and the signs of softness in the USD appear to be driven by typical rebalancing behavior among large institutions.

The substantial moves in USD assets following the Trump election victory have prompted significant players like pension funds and insurers to rebalance their portfolios. These institutions are realigning equity and bond holdings to meet “target allocation” percentages as stipulated by their investment policies.

This behavior explains the weaker USD, the softness in US equities compared to European and Chinese equities, and the slight shift in returns from equities to bonds. Essentially, pension funds are selling what has outperformed to regain exposure to underperforming assets post-Trump victory. Crypto, however, remains largely unaffected by these institutional rebalancing flows, which explains why it hasn’t sold off.

This rebalancing should not be mistaken for an actual exhaustion of the Trump trade. Instead, it offers a strategic opportunity to increase exposure.

Chart 1: US outperformed Germany by miles after the election