Wall Street welcomes Trump's return to power, but this time it may have miscalculated?

BCA Research stated that the market's expectation that the United States under Trump's leadership will enter another period of ultra-high-speed growth is incorrect, and therefore risks should be avoided. Since Trump won the election earlier this month, U.S. stocks have risen almost across the board, with the S&P 500 index up nearly 2% since election day, and investors' exposure to U.S. stocks has surged to an 11-year high. Traders are betting that Trump's proposals for widespread deregulation and corporate tax cuts will boost corporate profits, particularly for so-called Trump trades like bank stocks. However, the research firm indicated that these proposed policies may not have the same significant impact on the market as they did when Trump first took office. BCA Research strategist Juan Correa stated, "The market expects Trump to implement a series of policies that will allow the economy to grow like it did in 2017. But we believe the consensus is wrong." He pointed out that the current economic backdrop is vastly different from when Trump began his first term. When Trump first took office in 2017, he faced rising inflation and the beginning of a Federal Reserve rate hike cycle. This time, both inflation and interest rates are declining. Correa noted that this has shifted the Federal Reserve's focus to the labor market, which has already begun to show signs of deterioration. Meanwhile, global growth appears to be slowing. "Those betting on a repeat of the 2017 scenario are making judgments based on data from eight years ago," Correa said. Some investors might argue that Trump's policies could reverse the current macro trends, just as the policies he implemented during his first term supported economic growth and inflation, which are particularly likely to be enacted under a Republican sweep of both houses of Congress. But Correa believes this idea may be overestimated. In his view, it is still unclear whether Trump's tax cuts were truly the core of the economic growth in 2017. He also believes that achieving additional growth through government spending will be more difficult this time. He stated that the deficit is already so large that it is unlikely to increase significantly at current levels, and the forecast for next year's fiscal situation is already negative. In short, traders are viewing Trump through the lens of his past term rather than the unfavorable circumstances he faces now. Correa said, "Investors are considering individual factors rather than macro factors. Worse, they are considering conditions from eight years ago. Therefore, we believe some assets are overextended," referring to small-cap stocks, the dollar, and risk assets. Correa recommends adopting a defensive strategy, selling stocks and buying bonds. He said, "We are still reducing our stock holdings and maintaining defensive positions. Even in a soft landing scenario, 10-year U.S. Treasury bonds will rebound 12% from current levels next year."