Are US stock markets climbing too fast, too furious?

There seems to be no end in sight for the Trump rally that started on November 9, 2016. Like with gloomy predictions over the vote in favor of the Brexit, it seems that market analysts have got it all wrong so far regarding the election of Republican Donald Trump to the White House. The markets didn’t crash at all, actually they skyrocketed and reached new records high repeatedly over the last 3 months.

The S&P 500 index (SPX) rose 5.54% YTD, reached 2,366; the Dow Jones Industrial Average (DJIA) rose 5.13% YTD, reached 20,781; the NASDAQ 100 (NDX) rose 10.04% YTD, reached 5,345; and the Russell 2000 (RUT) rose 3.44% YTD, reached 1,410 (see chart). According to most analysts, the US markets, in contrast with Europe’s, have jumped thanks to CEOs and shareholders’ big expectations on the Trump administration’s pro-business agenda. Trump demanded that for one new regulation, two should be withdrawn. He also said he would significantly lower corporate and individual taxes down, generating expectations of a surge in household consumption.

As a result, in addition to increasing political risk because of upcoming elections in The Netherlands, France and Germany, the biggest risk to the markets may now be Trump himself and how and to what extent he will be capable of fulfilling his commitments despite strong opposition from outside – Democrats, Medias, Silicon Valley, Hollywood – and from inside – Republicans like Senator John McCain. A relevant first indication of how strong the rally really is will be how the markets react to the apparently impending Federal Reserve (Fed)’s rate hike.