Investors were spiking the ball in the end zone, dancing the Griddy and leaping into the stands following Donald Trump’s stunning victory in this week’s presidential election. Stocks exploded higher, bonds tanked and crypto boomed to historic peaks, indicating lofty hopes for when the president-elect takes office in January. However, there’s still a lot of game left to be played, and the score could change a lot in future days. Nothing lasts forever. Sustaining this Trump rally will require that a lot goes right for an agenda that could cause new dangers such as another leg higher in inflation, a global trade war and more fiscal instability to add to the pernicious debt and deficit issue in the U.S. .SPX 5D line S & P 500 soars The future of fixed income took the focus for a lot of postelection Wall Street commentary. Essentially, strategists worry Trump’s plan for punishing tariffs, higher spending and lower taxes will send bond yields higher, generally a recipe for trouble in stocks. “For risk assets, my concern now is that when the dust settles and folks realize that we are in a world where rates really are staying much higher for longer, then this can be a cause of some pain,” said Mark Dowding, BlueBay chief investment officer at RBC Global Asset Management. “The question for me is how much can the Trump rally extend in the short term, but it strikes me that selling long positions into a rally makes a good deal of sense.” In Wednesday trading, major averages soared at the outset and never looked back. All three major averages closed at record highs. At the same time, bonds sold off dramatically, causing yields to spike. The 10-year Treasury note, for instance, rose 14 basis points to 4.43%, the highest since early July. A basis point equals 0.01%. US10Y 1D line 10-year Treasury yield In a good news scenario, the surge in yields is a sign of confidence that the economy is on a solid long-term growth trajectory, with investors ditching the safe haven of fixed income. However, the double-edged sword is accompanying inflation pressures with that growth, possibly causing the Federal Reserve to rethink its plans to lower interest rates . The delicate market dynamics raise concern that things could unravel, particularly when viewed through credit spreads that are unusually low, suggesting investor complacency. “This suggests an asymmetric risk/reward framework with a much higher probability of downside than upside,” said Lisa Hornby, head of U.S. fixed income at Schroders. “The implication of a potential Republican sweep adds one more pillar of uncertainty, which again suggests that more risk premium should be embedded into markets, not less.”
