The core logic behind the rise of US stocks: the market bets that Trump will not let the stock market fall!

Currently, the U.S. stock market is experiencing a rally driven by the "Trump put options."

On Friday, the Dow Jones Industrial Average rose by 1%, the S&P 500 increased by 0.3%, and the Russell 2000 index climbed by 1.8%. This week, small-cap stocks have performed particularly well, with the small-cap index surging by 4.5%.

Fundstrat analyst Thomas Lee believes that considering President Trump's plans for deregulation and the prevailing "animal spirits" in the current U.S. stock market, small-cap and cyclical stocks still have room for further gains.

The so-called "Trump put options" refer to the market's widespread expectation that Trump will not allow a significant decline in the stock market.

As mentioned in a previous article, this stems from Trump's unique governing style: he is very concerned about the performance of the S&P 500 and views stock market performance as an important indicator of his governance effectiveness. Whenever the S&P index experiences a significant drop, he quickly adjusts his policy direction.

David Bahnsen, founder of Bahnsen Group, believes that Trump's emphasis on financial markets stems from his desire for recognition from Manhattan's financial elite:

"He has always yearned to be part of the Manhattan financial elite circle but has always felt like an outsider."

Therefore, the market expects that after he takes office, he will introduce a series of favorable policies, including significantly lowering corporate tax rates and relaxing financial regulations, which further strengthens the market influence of the "Trump put options." In other words, the U.S. stock market is "betting" that Trump will never tolerate a stock market crash.

Are "Trump put options" making a comeback?

Wall Street holds an optimistic view on Trump's return, mainly based on the following expectations:

First, favorable policies. The market expects Trump to introduce favorable policies, including lowering corporate tax rates (from 21% to 15%) and significantly relaxing regulations (eliminating 10 old rules for every new rule introduced). At the same time, he has promised to replace the chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, on his first day in office. Some Wall Street executives anticipate that the banking industry will see more merger opportunities driven by deregulation measures.

Second, personal traits. David Bahnsen of Bahnsen Group (managing $65 billion in assets) believes that Trump's emphasis on financial markets stems from his desire for recognition from Manhattan's financial elite. "He has felt like an outsider in Manhattan his entire life, never receiving the recognition and respect he deserves." This psychological trait, to some extent, serves as a "safety net" for the market.

Third, moderate policy expectations. Renowned economist Nouriel Roubini (known as "Dr. Doom") and others believe that Trump's emphasis on the market, combined with a suitable advisory team, may lead to "more moderate" actual policies However, not everyone is fully convinced about the "Trump put options." Mark Zandi, Chief Economist at Moody's Analytics, warns that the market's excessive optimism is pushing stock prices too high, which could lead to a "day of reckoning." Some experts are concerned that Trump's mass deportation of immigrants and hefty tariff policies could negatively impact the labor market and the economy.

In addition, Tom Glocer, Chief Independent Director at Morgan Stanley, reminds that Trump's erratic political style could also trigger market volatility; for example, if he refuses to step down after his second term, the market could descend into chaos