Can anything stop the latest rally?
The S&P 500 is on a six-day winning streak, as investors pile into the Trump-trade rally on expectations that the president-elect will cut taxes and red tape, and bolster growth. One big hope is that deal making is set to boom, and that’s driving a rebound in bank stocks.
But alarm bells are ringing, even inside the banks. Some Wall Street economists continue to warn that Donald Trump’s plans for tariffs and tax cuts will reignite inflation and add to the deficit. And even as his allies say the market rally shows that the traditional experts are wrong, don’t be surprised if the president-elect finds that tighter economic conditions and a restive bond market force a rethink of his agenda.
“This is not 2016, when Trump inherited an economy recovering from six years of secular stagnation,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a client note on Monday. She notes that the bond investors are worried about higher inflation and debt-financing costs — thanks in part to a $35 trillion debt pile — which could constrain a new administration.
Shalett added that, “these dynamics have introduced uncertainties around Fed easing, rising yields” and dollar strength.
The bulls see it very differently. Consider these moves:
Bitcoin was trading near $90,000 on Tuesday, having doubled since the start of the year. MicroStrategy said that it bought more than $2 billion worth of the cryptocurrency, adding to its huge holdings and pushing its stock to a record.
Tesla has climbed more than 40 percent in the past week, adding more than $300 billion to its market value, and is up again in premarket trading.
The KBW Nasdaq Bank Index, which tracks shares of some of the nation’s largest lenders, is on one of its best runs in years — and analysts think more gains are to come. (The soaring stock market is expected to boost Wall Street bonuses this year.)
The dollar and Treasuries tell a different story. The greenback has been climbing since Trump’s victory, a potential drag on multinationals’ profits. Elsewhere, the yield on the closely watched 10-year Treasury bill ticked higher again on Tuesday, suggesting that investors are on alert about inflation and the Fed.