Investors haven’t been able to get enough of US stocks since Donald Trump’s election victory. This is a risk-on market, with investors cheering the prospect of deregulation, tax cuts and cheaper energy. Bank of America’s latest monthly fund manager survey shows the percentage of investors overweight US stocks has surged to an 11-year high.

Before the election, those surveyed expected US and global stocks to perform similarly next year, but US stocks became the clear favourite among respondents following Trump’s victory. DataTrek Research strategist Nicholas Colas agrees, saying that a “very large and economically powerful country with an explicitly nationalistic set of government policies will logically see better returns than the alternatives”.

Perhaps, but it’s worth remembering that the current flavour of the month, US small-cap stocks, were widely expected to outperform following Trump’s 2016 election victory. Instead, they lagged large-cap stocks over the following four years. Green stocks were expected to outperform during Joe Biden’s presidency, but the oil-related energy sector was the big winner.

The current assumption of continued US outperformance ignores the fact that American markets are almost as expensive as they have ever been, and much more expensive than when Trump won in November 2016. Investor excitement for Trump 2.0 is palpable, but political promises don’t always translate into lasting returns.

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