The realities of politics and policy are colliding with the optimistic rhetoric of campaign promises, and that may cause the post-election rally in U.S. equities to stall.
Investor optimism about the “Trump bull market” is starting to wane as they grow increasingly skeptical about President Trump’s ability to deliver a meaningful fiscal stimulus in the form of targeted spending and tax cuts, which could drive growth, support earnings, and move equity prices higher.
At this point, investors may wish to right-size their portfolios, take gains, and maintain exposure to traditional core bond portfolios. International equity markets, where expectations are not as high as in the U.S., may offer an attractive option for equity investors.
The risks to the outlook for U.S. equities, given the uncertainty surrounding the policy direction of the new administration and the prospects of Federal Reserve policy tightening, are greater than they have been at any point in this cycle. The potential for disappointment is high.
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