The Trump trade dominated markets post-election. It's now floundering — and here's why.

Given the negative sentiment surrounding the Trump administration's policies and investor fears of potential economic slowdowns as indicated by recent economic data, stocks that were previously boosted by expectations of deregulation and tax cuts may continue to decline. Sectors like small caps and energy are particularly vulnerable. Therefore, a cautious approach is recommended, especially in sectors related to Trump policies.

As confidence in the pro-business policies falters, the financial sector, exemplified by the Financial Select Sector SPDR Fund (XLF), is considered overvalued right now due to the expected three rate cuts from the Federal Reserve. Given its recent limp performance, further retrenchment is likely unless there's a clear change in fiscal policy or economic data indicates significant recovery.

On the flip side, if negative trends exacerbate consumer confidence further, defensive stocks or sectors may become more attractive as investors seek stability. However, broad market recovery seems contingent on resolving trade uncertainties and inflation pressures, making a positive outlook uncertain without those shifts.