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(Bloomberg) — A sense of déjà vu overwhelmed Wall Street this week, as Donald Trump’s election win gave the stock market a jolt similar to what happened after his victory eight years ago. Small caps soared, banks leaped and the S&P 500 Index had its best Election Day in history and strongest week in 12 months.

The challenge, however, is this is 2024, not 2016. Things have changed a lot since then. 

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“As Mark Twain once said, ‘History does not repeat itself, but it often rhymes,’” Matt Maley, chief market strategist at Miller Tabak + Co., LLC, said. “So investors should remember the old playbook, but they shouldn’t memorize it.”

When Trump ran for president in early 2016, US equities were on shaky footing, posting their worst start to a year since the financial crisis with a drop of more than 5% in January. By the time of his inauguration, the S&P 500 was coming off a 9.5% gain in 2016 after ending 2015 in the red. The index was trading at 17 times projected earnings. The yield on 10-year Treasuries was around 2.5%, and the fed funds rate sat at 0.75%. 

Fast forward eight years and the landscape is very different. Equity valuations are soaring. The S&P 500 is at an all-time high and briefly surpassed 6,000 for the first time ever after rising 56% in the past two years. The tech-heavy Nasdaq 100 Index is also at a record after nearly doubling since the start of 2023. The S&P is trading at 23 times projected earnings, some 40% above its average since 2000. The yield on 10-year Treasuries is 4.3%, and the fed funds rate is at 4.75%.

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In other words, the stock market was pretty well set up to rip at the start of Trump’s first term in office. But this time, the stocks appear to be at a peak or nearing one, and there may not be much more room to go.  

“It’s not what you would normally think — that rates go way up, and that the stock market goes up substantially with rates going up — unless inflation’s going up with it,” said David Miller, co-founder and chief investment officer at Catalyst Funds. “Which is, I think, what’s happening.”

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Inflationary Policies

The premise behind traders’ reaction to Trump’s win is that his promises of tax cuts and deregulation will keep propelling equities to new heights. The flip side, however, is that the president-elect’s protectionist trade stance and plans for mass deportations of undocumented workers are seen as inflationary and potentially threatening growth. 

“The Trump victory will likely put upward pressure on inflation due to tariff and immigration policy,” TD Securities strategists including Oscar Munoz and Gennadiy Goldberg wrote in a note to clients on Friday.

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That explains why Wall Street forecasters are dialing back their expectations for how much the Federal Reserve will cut interest rates after the US central bank reduced borrowing costs by a quarter of a percentage point on Thursday.

TD Securities predicts the Fed will pause its interest rate cuts in the first half of 2025 so it can assess the impact of Trump’s economic plans. Goldman Sachs Group Inc. had been predicting rate cuts in May and June, but now projects them in June and September, marking a slower pace. And Barclays Plc economists were expecting the central bank to reduce rates three times in 2025, but sliced that to two. 

“The bond market is going to dictate whether or not his policies can get enacted,” said Carol Schleif, chief investment officer of BMO Family Office.

In the stock market, the differences between 2016 and 2024 were already evident before the election. US equities outperformed their international counterparts in October, which is rare in an election year, according to Bloomberg Intelligence chief equity strategist Gina Martin Adams. 

And now that the vote is over, the tilt toward value hasn’t been as strong as it was in 2016, when the Russell 1000 Growth Index was roughly flat in three sessions after Election Day while the Russell 1000 Value Index jumped. This time, it’s the opposite, with the growth index handily outpacing the value index.

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Growth Joins The Party

At the sector level, not a single group has had a decline since the election. In 2016, five of the 11 sectors fell between Wednesday, Nov. 9 and the weekend. 

The energy group is up 3.6%, adding to gains that made it the best performing sector during President Joe Biden’s term, gaining almost 120% since his inauguration. It was basically flat in the days after the 2016 election, and the sector actually declined 40% in Trump’s first term.

Despite the fact that the US has become the world’s largest oil producer under Biden, Miller Tabak’s Maley said most investors don’t realize that energy stocks performed so much better under him than in Trump’s first term. But he expects the sector to outperform this time.

While the differences between 2016 and 2024 are stark, one thing remains the same: stock market investors are enthusiastic for a Trump presidency. A whopping $20 billion flowed into US equity funds on Wednesday, the biggest daily addition in five months, the day after he claimed a decisive victory in the presidential election, according to Bank of America Corp. strategists and EPFR Global data.

So far, while Treasury yields are higher and the risk of rising inflation remains acute, Wall Street pros see stocks continuing to rally on optimism that his policies will propel Corporate America to further growth. 

“I think you’ll just see higher inflation, higher rates and higher stocks,” Catalyst Funds’ Miller said. “If people are willing to let inflation run hot, you can get stocks to run with it.” 

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