Source: Zhitong Finance "Since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%)." With the rebound of the stock market, the old adage "Sell in May and Go Away" seems to have been a bad advice once again. Last month, the S&P 500 index rose 4.8%, the best May performance since 2009. The NASDAQ 100 index rose nearly 6.2%, and the NASDAQ Composite Index rose 6.9%. Goldman Sachs FICC & Equities Trading Division said: "History doesn't really support this saying. Don't sell, leave the market (go on vacation), and enjoy the good times." The rising trend is still to be continued? If history is any guide, it may indicate that the rise of the stock market is not over yet. Looking ahead to the rest of 2024, Scott Rubner, Managing Director of the Goldman Sachs Global Markets Division and tactical expert, pointed out the following historical background for investors. Rubner stated that the S&P 500 index has risen 10.7% year-to-date, and since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%). "Since 1950, the median return of the last 7 months of each year (June 1 to December 31) is 5.4%. In the aforementioned 21 cases, the average performance of the last 7 months increased to 8.1%." Rubner added. Rubner also pointed out that the NASDAQ index has risen for 16 consecutive Julys, with an average return of about 4.64%.

Trump's landslide victory in the US presidential election has sparked a buying frenzy in the US stock market. Traders optimistically believe that a second Trump administration will benefit businesses, stimulate the already strong economy, and therefore shift assets to US stocks and the US dollar, causing a surge in US dollar assets. However, there is one notable exception: Investors in the $28 trillion US Treasury bond market are selling bonds, pushing yields to the highest levels in months.

The selling is a reminder from a powerful group: the so-called 'bond vigilantes' are watching Trump, self-proclaimed 'King of Debt', as he claims to have 'unprecedented' powers to implement tax and tariff agendas.

The rise in US bond yields signifies that financial markets believe Trump's policies may trigger inflation and increase federal debt. Higher borrowing costs may in turn impact Trump's economy, slowing economic growth and other markets.

Senior strategist Ed Yardeni said, 'This is a new day for America, and a new day for the bond market. Trump's overwhelming support gives him tremendous power not only in the US but also globally. With a very large deficit, the bond market has reasons to be concerned about the continued stimulative fiscal policy.'

Yardeni coined the term 'bond vigilantes' in the early 1980s to describe investors who attempt to influence government policies by selling bonds, or even just threatening to sell bonds.

The yield on the 10-year US Treasury bond surged nearly 25 basis points on Wednesday, briefly reaching 4.48%, the highest level since July. The 10-year US Treasury yield is the risk-free benchmark for over $50 trillion globally in fixed-income securities denominated in US dollars. Yardeni and other investors believe that if Trump's fiscal policy angers investors, the yield may touch 5% again.

When the original 'bond vigilantes' emerged in the 1980s, the US was experiencing a prolonged period of unusually high inflation. Since then, they have occasionally appeared, including during the first term of former US President Bill Clinton when he attempted an ambitious domestic agenda.

Fast forward to today, even without considering the impact of leadership changes, the non-partisan Congressional Budget Office predicted in June that by the end of 2034, the long-term deficit in the USA would increase the debt to around $48 trillion. Currently, the net interest cost is equivalent to 3.06% of GDP, the highest level since 1996.

Last month, the Committee for a Responsible Federal Budget (CFRB) estimated that due to Trump's deficit increase plan, by the 2035 fiscal year, debt will increase by $7.75 trillion, reaching the current estimated debt level. Despite CFRB pointing out that the scale may range from $1.65 trillion to $15.55 trillion, the likelihood of Republicans sweeping Congress is increasing - the Senate has already been won by the Republicans with a majority, and the Republicans are also leading the House with a slight advantage - increasing the possibility that Trump's plan will not be stopped by politicians.

Mark Dowding, Chief Investment Officer of RBC BlueBay Asset Management, stated: "Given the size of the deficit and the US debt, fiscal policy is more important for us as investors."

Ahead of the Tuesday vote, US bond yields and inflation expectations have been rising. The 10-year break-even inflation rate (a market indicator measuring long-term inflation trends) soared to a high of 2.43%, the highest level since April this year. Since September, with the resilience of the economy after the Fed's 50 basis point rate cut and the rising prospect of a Trump victory in the gambling market, this indicator has been increasing.

As Trump's policy agenda is seen as inflationary, some economists have already forecasted that following the 25 basis point rate cut by the Fed on Thursday, subsequent rate cuts will be lower than previously predicted. This may also put pressure on the bond market.

There is also evidence that investors are demanding higher yields to compensate for the risks of holding longer-term debt. The so-called term premium has been climbing. The term premium is a component of the yield that compensates investors buying long-term bonds instead of rolling over short-term securities, seen as protection against unforeseen risks like inflation and shocks in debt supply and demand. As of November 4th, the New York Fed's 10-year term premium model has surged from -29 basis points in September to around 22 basis points.

Robert Dishner, Senior Portfolio Manager at Neuberger Berman, stated: "The US government needs to be careful as investors may demand higher compensation if they are not careful with the budget."

Trump stated that the key to addressing the fiscal outlook is further tax cuts, he believes this will boost economic growth, thereby increasing revenue to offset the blow to government surplus. Most economists disagree with this view and believe that under his leadership, US debt will exceed 100% of GDP.

The facts may also prove that Trump's plan may not trigger inflation as some people fear. Faced with the turmoil in the bond market, he may even reduce spending in certain areas. Any measures that raise long-term yields to 5% could attract some investors to enter the market.

However, as long as US debt and deficits remain high, they will become pressure points. Gregory Faranello, head of AmeriVet Securities US interest rate trading and strategy, said: "Deficit spending will certainly not disappear. This will be a consistent theme, although it does not mean that yields will not eventually reach a level that sparks buying interest – it's just hard to say at what level."

Editor / jayden