Markets adjusted quickly to the surprise victory of Donald J. Trump in November's presidential election with the S&P 500 gaining almost 5% from the election through the end of the year. The risk premium, or the amount of compensation demanded by investors to assume perceived market risk, broke positive with the Trump victory as the yield on the 10-year Treasury note soared from 1.828% on the eve of the election to a year high of 2.603% by the 15th of December before falling back to a yield of 2.445% to end the year. The bond market in pure binary fashion saw the incoming Trump administration as clearly inflationary with talk of fiscal spending on infrastructure, tax cuts for both households and businesses and pushing back regulation of the finance and health sectors of the economy.
Of course, market enthusiasm for the so-called Trump trade could easily derail as his erratic…