When Will Trump's Trade Cool Down? JPMorgan Gives the Answer.

Trump's victory in the US election has driven US stocks and cryptocurrencies to recent all-time highs. However, many investors are anxious and trying to predict when this sentiment will reach a turning point.

JPMorgan Chase suggests that investors looking for this signal should focus on the US Treasury market. In its latest research, JPMorgan believes that the moment the 10-year Treasury yield reaches 5% is likely to be the turning point for the US stock market. Currently, the yield on this bond is around 4.3%.

JPMorgan's equity strategy team pointed out that once the bond yield reaches 5%, Trump's election victory will shift from a positive stimulus to a cause for concern. Investors will start to worry about the sustainability of the upward cycle and the fear of risks.

Following Trump's victory, Treasury yields have risen because the market expects that his tariff and immigration protection measures will drive up inflation and force the Federal Reserve to return to the rate hike process. On the other hand, dissatisfaction with the growing federal deficit also pushed up current Treasury yields.

Ed Yardeni, president of Yardeni Research, also warned last Saturday that if the Trump administration implements overly stimulative fiscal policies, with massive spending and tax cuts leading to a further widening deficit, it could cause some investors to sell off Treasuries, pushing yields to levels that could harm the economy.

However, JPMorgan also believes that before reaching the 5% warning line, the short to medium-term trend of the US stock market will be driven by Trump's policies. But whether these policies will be sweet or bitter once implemented remains unknown, and the stock market will face challenges at that time.

JPMorgan also stated that the return rate of US stocks this year is expected to be higher than in 2016, when Trump was last elected, with the S&P 500 index returning 11%, close to the index's average return level over the past few decades. So far, the return rate of the S&P 500 index has reached 26.54%.

Some economists believe that Trump will not be willing to damage the bull market in US stocks. Jeremy Siegel, a finance professor at the Wharton School, emphasized that to avoid losing the favor of the stock and bond markets, Trump may not fully implement his proposed economic policies.