Investing.com – As market excitement around Donald Trump’s presidential election victory has pushed stocks and cryptocurrencies to record highs, investors are wondering how long the rally will continue.
However, according to JP Morgan analysts, the signal of the end of the current euphoria could come from the bond market.
In a recent note, the bank’s analysts said the 5% level of the 10-year Treasury yield (currently at 4.3%) could be an inflection point for U.S. stocks.
“We believe that around 5%, the impact of bond yields on equity valuations is starting to shift from a positive/reflationary impact to growing concerns about the sustainability of the up cycle and the growing risk of accidents,” the bank’s analysts wrote.
Recall that government bond yields soared after Mr. Trump’s victory, as investors feared that the president-elect’s protectionist and immigration policies would spur inflation and lead to a slowdown in the decline in interest rates. Fed.
The prospect that “bond vigilantes” could demonstrate their displeasure with the exploding federal deficit by selling Treasuries adds to the upward pressure on bond yields.
Absent a move above 5% for the 10-year Treasury, JPMorgan (NYSE:) said the direction of the market in the short to medium term would be dictated by the policies Trump prioritizes.
JPMorgan said in particular that it foresees difficulties for the stocks if the president-elect’s second term begins with immigration restrictions and higher tariffs. On the other hand, if Mr. Trump focuses on tax cuts, stocks will benefit, analysts say.
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