“We are in a big, fat, ugly bubble.” – Donald J. Trump

If Trump is right, the election just made it worse.

Of course, I’m certain that if Trump were asked what he thought of the market now, he’d be singing a different tune. Since Trump won the presidency, small-cap stocks and cyclical sectors have been on an absolute tear. We went from investors fearing a Trump Crash to a Trump Melt-Up. The narrative changes as price changes. Always remember that the reasons for why markets go up or down change based on whether markets are up or down. The futility of predicting the long-term is somehow always forgotten.

Are we in a bubble? I have no idea.No one does. A bubble to me is best defined as an irrational belief held by the vast majority of participants which reaches a fever pitch. I think by that standard, there probably is a bubble forming in the overriding belief that everything Trump attempts to accomplish will be uniformly positive and bullish. The market seems to always get secondary and tertiary effects wrong. Unintended consequences are a part of everything in life, particularly so in large complex systems. To think with such euphoria that the next four years will be an economic boom because we have a businessman in the oval office disregards the fact that the future is never quite what we imagined. It is only hindsight bias and narrative which makes us think that it always was.

Momentum in the moment is always nice to participate in, but not getting caught up in it is the key to tactical portfolio management. In the near-term, it looks like market movement could continue higher given that yield sensitive areas continue to underperform. Generally (with the exception of the last few years), yield parts of the investible landscape tend to outperform anticipating a period of higher volatility instead. Thus far, given that credit spreads remain tight despite the yield move higher, there are no near-term signs of stress. That doesn’t mean necessarily that stocks won’t close the year out lower than they are now.It just means the odds favor continuation in trend.