Currently, the US stocks are experiencing a rally driven by 'Trump put options.'

On Friday, the Dow Jones Industrial Index rose 1%, the S&P 500 rose 0.3%,$Russell 2000 Index (.RUT.US)$rising 1.8%. This week, US small-cap stocks have performed particularly well, with the small-cap stock index soaring 4.5% this week.

Fundstrat analyst Thomas Lee believes that considering President Trump's relaxed regulatory plans and the current widespread 'animal spirits' in the US stock market, there is further room for small-cap stocks and cyclical stocks to rise.

The so-called 'Trump put options' refer to the market's general expectation that Trump will not allow a significant market downturn.

The article mentioned previously stated that this stems from Trump's unique governing style: he is very concerned about the S&P trend, sees stock market performance as an important indicator of governance effectiveness, and whenever the S&P index sees a significant decline, he promptly adjusts policy direction.

Bahnsen Group founder David Bahnsen believes that Trump's emphasis on the financial markets stems from his desire for recognition from Manhattan's financial elite.

"He has always wanted to integrate into the Manhattan financial elite circle, but always felt like an outsider."

Therefore, the market expects that after he takes office, he will introduce a series of bullish policies, including significantly reducing the corporate tax rate, relaxing financial regulations, which further strengthens the market influence of the 'Trump put' options. In other words, the US stock market is 'betting' that Trump will not tolerate a stock market crash.

Will the 'Trump put' option make a comeback?

Wall Street holds an optimistic view towards Trump's return, mainly based on the following expectations:

Firstly, policy bullishness. The market expects Trump to introduce bullish policies including lowering the corporate tax rate (from 21% to 15%), significantly easing regulations (canceling 10 old rules for every new rule introduced). At the same time, he promised to replace Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), on his first day in office. Some Wall Street executives predict that under the push to ease regulations and other measures, the banking industry will see more merger opportunities.

Secondly, personal traits. David Bahnsen of Bahnsen Group (managing $65 billion in assets) believes that Trump's emphasis on the financial markets stems from his desire for recognition from Manhattan's financial elite."He has always felt like an outsider in Manhattan, never receiving the recognition and respect he deserves." This psychological characteristic, to some extent, serves as a 'safety cushion' for the market.

Thirdly, moderate policy expectations. Well-known economists like Roubini ('Dr. Doom') believe that Trump's emphasis on the market, along with the right advisory team, may make his actual policies "more moderate".

However, not everyone is convinced about the "Trump put options". Moody's chief economist Mark Zandi warned that the market's excessive optimism is pushing stock prices too high, which could lead to a "day of reckoning". Some experts are concerned that Trump's large-scale immigration crackdown and massive tariff policies may have a negative impact on the labor market and the economy.

Furthermore, Morgan Stanley's chief independent director Tom Glocer cautioned that Trump's unpredictable political style could also trigger market volatility. For example, if he refuses to step down after the end of his second term, the market could descend into chaos.

Editor/ping