Bull market revs back up on Trump enthusiasm as traders race to grab small caps, banks and Tesla

Last week, the electoral map saw significant changes that upended Washington, DC. Despite this, the economic and investment conditions appeared to favor risk markets after Donald Trump’s victory. The S & P 500 jumped 4.7% for the week, and the Federal Reserve trimmed short-term rates. However, there are nuances to consider, such as the differences between 2016 and now in terms of inflation, deficits, and corporate credit spreads. While the current policy mix may accelerate trends, there is little room for negative impacts. Investors are advised to be cautious and fade any near-term rally that exceeds certain targets. The market’s reaction to the election results may be driven by stories, feelings, and fund flows, potentially leading to recreational purposes for the market. In summary, while the fundamental return setup may not be exciting, the market sentiment and potential policy changes could sustain optimism for future earnings growth and economic cycle lengthening. The S & P 500 has been performing strongly, reaching the top end of its bull-market trend. While a pullback may be expected, it is unlikely that a peak is imminent. Market breadth has been lackluster, indicating that investors are favoring certain stocks over others based on perceived policy winners. Investors have been cautious leading up to the election, but there is still room for portfolios to take on more risk. It’s important to monitor investor sentiment and positioning, as the market may become overly optimistic. Despite potential volatility, the seasonal bias towards upward movement may still prevail.