Trump's Market Victory Lap: What’s Next for the Economy?

Well, well, well, looks like the folks in suits over at Goldman Sachs hit close to the mark. They forecasted a 3% post-election bump if we saw a red wave, and—almost as if scripted—the indexes nudged up a respectable 2% overnight after Trump’s win and the Senate officially going red. Can’t help but tip our hats to Goldman’s number-crunchers for being nearly right.

Maybe they got a little over-excited and rounded up, but we appreciate their enthusiasm. After all, it’s nice when Wall Street’s crystal ball is in the same neighborhood as reality. If this keeps up, maybe we’ll start asking them to predict our fantasy sports leagues, too. For now, we’re basking in that shiny 2% boost—close enough to the red wave rally promised by the suits, and who knows, maybe that last 1% is just fashionably late.

But let’s be clear and keep our eyes peeled: bond investors just felt the impact of what I’ll call "Trumpflation," driven by fears of skyrocketing prices due to potential policy changes. But let’s not jump to conclusions—this is classic Trump negotiation mode. The economy still has recession written all over it, and that job market that just got a bandage might end up needing surgery if green credits and job-creating acts like the IRA and Chips Act face cuts. If we factor in job losses possibly accelerating by 2025, let’s face it: the “roaring economy” narrative might have a short shelf life.

Still, let’s consider the alternatives:

Scenario 1: No Recession (a.k.a. Market Bliss)

In an ideal world where the economy sidesteps a recession, we might see some fan-favorites soar. Anti-trust? Probably taking a back seat. "Buy America" sentiments? Front and center. In this environment:

• Big Tech: Apple, Amazon, and Google could regain their status as the darlings of Wall Street.

• AI and Software: Microsoft and Palantir might ride the AI deflation wave, where cheaper tech means broader adoption.

• Airlines: Spirit and JetBlue look good right now, though bankruptcy risk looms.

• Small Caps: Possibly attractive, but they’re delicate—one whiff of a recession, and they’ll feel the heat.

  
  

So, what could cause another rally? A near-perfect setup of zero inflation surprises, lower corporate taxes, and a rosy economic optimism akin to 2016. But let’s not forget, 2016 wasn’t plagued by a shaky jobs market. This vision of “market perfection” also banks on Tesla’s self-driving promise being realized while turning a blind eye to Chinese competition. Oh, and tariffs might not be the cash cow for U.S. companies some imagine. Still, Deere, Generac, and Tesla fans could enjoy this burst of optimism...for now.

Reality Check: Perfection Might Be Overpriced

We’ve got an uninverted yield curve—a cool 20 basis points above water—which looks like a setup for significant downside risk over the next year. Even if we dodge a recession, the chances of disappointments are high, making now a tempting time to consider selling calls to lock in gains. For Tesla and Enphase traders, volatility is your friend here; sell calls if you’re holding, or maybe sell some puts on Enphase before January’s job data sends things swirling.

In the short term (think six months or less), Trump’s presence is momentum fuel for the market, and we might reach peak “Trump pricing” any day now. Set some trailing limits on high-flyers like Tesla, Palantir, and Nvidia to protect gains if the market turns south. Remember, trail limits are your seatbelt in this wild ride: for Tesla, maybe set it $20 below your current price to capture the upside without committing to freefall if things go sour.

Scenario 2: Recession Risks (It's Not Trump’s Fault)

If a recession is lurking, I wouldn’t pin it on Trump. Let’s be fair—if we get hit, it’ll be because the Fed went tight for too long, not due to any one administration. If early warnings start flashing in Q1, expect sell-offs to drive us into recession territory by mid-year. Let’s hope it doesn’t happen, though. People’s livelihoods are at stake, and mass layoffs in an AI-dominated job market could make a recovery feel like navigating a minefield with a magnet.

If a recession does come, expect the finger-pointing to land on Trump, even if it’s the Fed’s doing. Could tax cuts save us? They’d likely roll out by May but may take until late 2025 to make a meaningful impact on spending. By then, we might be looking at recovery rather than prevention.

Bull/Bear Scale: Moderately Bearish

I’m sticking with a solid 3 on the bull/bear scale. Trump’s return is nice for short-term market cheerleading, but the same underlying issues remain. Euphoria might be disguising serious challenges like waning pricing power and the looming correction in AI-driven tech. With UPS and Amazon setting cautious tones, it’s pretty clear: layoff season might hold the final say on the economy’s direction.

In short, the best-case scenario here? A straight shot up. But the realistic scenario? This thesis needs time, patience, and probably a protective strategy or two.