What to expect from the Markets this week - Trump trade to continue

The higher yields and stronger dollar of the Trump trade should continue to dominate markets in the week ahead. At the same time, with stocks near all-time highs, traders are watching to see if gains fade in some of the more bubbly sectors of the stock market. The four-day Thanksgiving trading week does have some economic data, including existing home sales Tuesday, and new home sales and durable goods on Wednesday. Markets have been re calibrating with money moving out of bonds and into stocks since the surprise election win by Donald Trump.Dollar index is up 3% and 14 year high, and Treasury yields, which move inversely to price, are at the highs of the year.

Deutsche Bank chief equity strategist David Bianco said he has become more bullish on a stocks as a result of the election. He changed this year's S&P 500 target to 2,200 from 2,150 after the election. Bianco said he expects stocks to continue to run. He now expects the S&P could reach 2,350 in 2017, and 2,500 by 2018, before the bull market ends.

"We estimate that every five points of the structural tax rates reduction would boost profits in the S&P 500 by about 4 percent," he said. Trump proposes a 15 percent tax rate from the current 35 percent, but Bianco said even a 25 percent rate would be a big plus. Domestic industries would benefit more than those with a lot of overseas profits, he said.

Hogan said it helps that the Trump transition in markets comes as economic data was beginning to look better. "The economic data is important and the Fed is only talking about raising rates two times next year," he said, adding that bond yields may be moving too quickly. He said the move in the dollar makes more sense, and its potential impact on multinational earnings has not yet started to worry the stock market. "We will change our tune if it continues at the pace it's going," he said.

Jim Caron, fixed income portfolio manager at Morgan Stanley Investment Management, said the 10-year yield is at an important balancing point. It is at a level – 2.30 to 2.35 - that it was at late last year when the markets believed the economy was improving and the Fed was going to hike rates four times in 2016. But weakness in China, Brexit and other factors intervened, and the Fed now is only on track to hike once this year, in December.

He said it's too early to tell, and one negative would be if Trump begins to take steps to change trade accords that would spark retaliatory action from trade partners. "Trade, that's the wild card," he said.

"We may be getting way ahead of ourselves. There is one thing we can't measure, and that is animal spirits. If animal spirits are rising and confidence is moving higher, that could be surprising," he said noting yields could go higher than expected more quickly.