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Stocks had a bad day last Friday. It’s tough to generalize based on one day of price action in the stock market, but it looks like reality is setting in.

In the week following the election, stocks went up on the idea that Trump was going to deploy a pro-growth agenda that would result in higher stocks throughout the duration of his second term. Then, it occurred to people that a Trump administration might mean a Federal Reserve that is willing to keep rates higher, so long as Powell is chairman. A few Fed officials said as much.

Then, people realized that RFK Jr., the new head of Health and Human Services (HHS), is going to crush the pharmaceutical industry. And so on.

I have been going on a few podcasts saying that this could happen but didn’t act on it. After 16 years of stocks rising, I am not really in the mood to short stocks.

But yes, Trump is bullish for stocks; also yes, there are going to be problems with execution. Having said that, if you recall Trump’s first term, there was a lot of chaos and drama on Twitter, and Trump didn’t meet his sought-after accomplishments. I doubt he will make the same mistakes this time, but there is already plenty of chaos.

Translation: Stocks are not going to go up forever, regardless of what people think.

Now, it’s hard to make predictions about the next four years in the first two weeks after the election. Pretty much impossible. The conventional wisdom going into the election was that Trump was bearish for bonds on the idea that he’d blow out the budget, which would result in lots of issuance.

The bond market has just survived a week of strong economic data and refuses to sell off. Elon Musk thinks he can trim $2 trillion of the federal budget. That will be hard without cutting into entitlements, but I’d like to see him try. Whom else would you trust to get it done? If he is successful, that is the bull case for the Treasury market. The markets are sorting this out as I write. Someone will be right, and someone will be wrong.

As for tariffs, they’re allegedly bullish for the dollar. They certainly have been so far, although Trump and Vance have made explicitly dollar-bearish comments in the past. They might talk down the dollar. They might, if you can believe it, conduct currency interventions to explicitly weaken the dollar. All of this is within the realm of possible. The idea that the US will grow and prosper and outperform the rest of the world for the next 20 years seems... consensus. Priced in.

I’m not sure what’s going to happen next. But I am sure of one thing: What happens next will be what people least expect.

What People Least Expect

Republicans are generally considered to be better for stocks than Democrats. One of the dumbest things in finance is when someone points out that this is not the case—that the stock market performs better under Democrats than Republicans—then suggests that quasi-socialistic policies are better for stocks than capitalism. Like I said, one of the dumbest things in finance.

But this is an administration that is not necessarily friendly to big corporations. For example, RFK Jr. is openly hostile to big pharma. And JD Vance is openly hostile to big tech, saying once that Lina Khan was the only person in the Biden administration who was doing a good job.

It is important to remember that the Republican party now leans into populist/nationalist policies. It is unrealistic to expect valuations to expand for the top 20 or so stocks in the S&P 500, many of which trade at over 10X sales, especially given the high index concentration under a Trump administration.

Assumption: Trump is good for stocks. Reality: Perhaps not. Remember, the market always does what surprises people the most.

That’s not to say that Trump isn’t good for the economy and small business. That might be the case, for sure. But small business is neither in the S&P 500 nor your 401(k).

One thing I found interesting about the election was that Biden was summarily ejected with the stock market at all-time highs. What will happen in 2028 with the stock market 20% lower? Trump was super-obsessed with the stock market in his first term. Interestingly, he hasn’t mentioned anything about it in a while. Probably doesn’t want to give his predecessor any credit.

One thing is for sure—crypto is probably going to keep climbing. Sadly, I own none at the moment.

Jared Dillian, MFA