Donald Trump’s return to the White House has sparked a surge in US stock markets. Investors are optimistic that his policies will create a business-friendly environment. The Dow Jones Industrial Average has risen above 44,000 for the first time.
The S&P 500 had its best week of the year last week. Big bank stocks have jumped on hopes of lighter regulations, and private prison companies are also seeing gains.
Investors expect increased demand for their services due to potential mass deportations. However, the bond market is showing some concerns. Treasuries have sold off, causing rates to spike.
This makes mortgages and other debts more expensive. Bond markets worry about increased deficits and inflation from Trump’s policy proposals. These include significant tax cuts and tariffs.
Stephanie Roth, chief economist at Wolfe Research, says two forces are driving higher Treasury yields: optimism about the economy and the election outcome.
Stocks rally with Trump’s return
The 10-year Treasury yield has surged this year due to the political climate. Over a decade, Trump’s fiscal plans could add $7.75 trillion to the national debt.
Many economists and investors also worry about inflation. Trump’s proposed tariffs and deportation policies could raise prices, especially for housing and agriculture. Despite these concerns, stock market investors remain optimistic.
“Animal spirits are back,” said Ed Yardeni, president of Yardeni Research. Investors are thrilled by the shift to a more pro-business administration. However, a continued spike in bond yields could pose future problems.
Higher rates make borrowing more expensive for companies and individuals, which brakes economic growth. The rising cost of servicing national debt could also become a significant burden.
In summary, while Trump’s return buoys stocks, the bond market’s rising yields signal underlying concerns. Higher deficits and inflation could have broader economic implications. “Higher rates would become problematic at some point.
I don’t think we’re there yet,” said Roth.
