According to the Financial Associated Press on November 19 (editor Liu Rui), since Trump won the election earlier this month, the US stock market has almost fully risen under the so-called "Trump trade": the s&p 500 index has risen nearly 2% since election day, and the exposure of stocks in the US market has reached a 11-year high.

US stock investors are broadly betting that Trump's proposals for widespread deregulation and corporate tax cuts will boost corporate profits, thereby driving up the US stock market.

However, BCA Research stated that after Trump officially takes office next year, the policies he currently proposes may not have as significant an impact on the market as they did when he first entered the White House — investors' enthusiasm for the "Trump trade" is actually akin to carving a boat to seek a sword.

The economic background is completely different.

"The market expects Trump to implement a series of policies that will restore the kind of growth seen in the US stock market in 2017. However, we believe this consensus is mistaken," said BCA strategist Juan Correa. He pointed out that the economic backdrop at the time of Trump's current term is completely different from that at the start of his first term.

When Trump first took office in 2017, he faced rising inflation in the USA and the beginning of the Federal Reserve's interest rate hike cycle. However, this time, both the inflation rate and interest rates in the USA are declining. Correa believes this has caused the Federal Reserve to focus on the labor market, which has already started to show signs of deterioration. Meanwhile, global economic growth seems to be slowing down.

Correa stated: "Those betting on a repeat of the 2017 scenario are basing their expectations on data from eight years ago."

The impact of Trump's policies is overestimated.

Some investors may believe that Trump's policies – such as those implemented during his first term to support growth and stimulate inflation – could reverse the aforementioned macro trends, and that, with the Republican Party winning control of the usa Congress, the likelihood of these policies being implemented is particularly high.

However, Correa believes that the impact of these policies may be overestimated. In his view, it cannot be confirmed whether the core behind the usa's economic growth in 2017 was Trump's tax cut policy.

Moreover, during Trump's second term, if he wants to create additional growth again through government fiscal spending, he will face greater difficulties – because the usa's deficit is already so large that it is almost impossible to make significant increases in fiscal spending at the current deficit level.

In short, Correa believes that the traders of the 'Trump trade' are actually using Trump's past performance to determine the next term of Trump, while ignoring the unfavorable situation he currently faces – this behavior is akin to trying to find a sword in a boat.

'Investors are betting on this person (Trump) without considering the macro context. Worse still, they are betting on a person who is not today’s individual (Trump), but the person from eight years ago. Therefore, in our view, some assets are overhyped,' Correa referred to the recently rising small cap stocks, the dollar, and risk assets.

Correa suggests that investors adopt a defensive allocation approach, selling stocks and buying bonds.

Editor/Lambor