The risk of the general election has dissipated, investors are crazy about risk assets! Is there no obstacle to the rising trend of US stocks?

Option investors are flocking to the US stock market to bet heavily on higher risk stocks, which has supported the rise in US stocks amid fading concerns about the presidential election and expectations that the Republican Party will maintain control of Congress next year. These bullish stocks involve a wide range of assets, from electric car maker Tesla, Inc. (TSLA.US) to small-cap stocks and regional banks. Since the November 5 election, these assets have collectively driven the S&P 500 index up by 3%. Garrett DeSimone, director of quantitative research at OptionMetrics, said, "We have broken free from this huge risk. It's comprehensive...everything is rising except for bonds." Before the election, options traders took a defensive stance to hedge against potential volatility related to the election, including concerns about a close or disputed election result. Now, many are shifting towards a bullish position, fearing underperformance compared to the market. With the rebound in the market after Trump and the Republicans won control of both houses of Congress, which was a widely expected outcome post-election and also Edison Research's expectation on Wednesday, it is anticipated that this result will give Republicans more freedom in pursuing their economic agenda, including tax cuts and deregulation. Charlie McElligott, managing director of cross-asset strategy at Nomura Securities, said in a report earlier this week that investors are "panicked chasing stocks at historical highs." Trade Alert data shows that the ratio of daily volume of bullish options to bearish options is 1.5:1, compared to 1.3:1 during the rest of the year. Data from Deutsche Bank Aktiengesellschaft shows a significant increase in net bullish single stock option trading volume for most sectors after the election. In a broader sense, there has been a huge change in the volatility landscape, with the Cboe Global Markets Inc volatility index (a measure of the demand for portfolio protection) dropping to a nearly four-month low of 13.67. Michael Thompson, co-portfolio manager at Little Harbor Advisors, said, "Market concerns about volatility did not materialize, so all the excess worries have been priced out of the market." McElligott pointed out that demand for bullish options has increased across a range of assets including the iShares Russell 2000 Index ETF (IWM.US), ARK Innovation ETF (ARKK.US), Regional Banking Index ETF - SPDR KBW (KRE.US), and Semiconductor Index ETF - VanEck (SMH.US). It is evident in the Tesla, Inc. options market how the market has shifted from concerns to upward speculation, as investors have been buying options betting on the electric car maker benefiting from CEO Musk's close relationship with Trump following Tesla, Inc.'s post-election surge. Data from Nomura Securities shows that Tesla, Inc. options accounted for around 30% of total US stock options trading volume on Monday. Analysts suggest that the influx of bullish options buyers may help drive stock prices higher. DeSimone of OptionMetrics said, "When you see these investors flocking to bullish options...this information gets priced into the stock and then you see the stock itself rise." Cautious optimism Of course, as the timing and details of Republican policy agenda become clearer, so-called "Trump trades" may encounter obstacles. Investors are also concerned that some of Trump's economic policies, such as tax cuts and tariffs, may trigger inflation. Some of these concerns have been reflected in the recent rise in US Treasury yields, which could pose a barrier to the stock market if this trend continues. On Thursday, US stocks declined after Federal Reserve Chairman Powell said that given the strong economy, the central bank is in no rush to cut interest rates. He added that the economic impact of Trump's policies will not be clear until new laws or executive orders are approved or released. This may be one reason why some indicators of investor enthusiasm have not reached the optimistic levels seen in previous market rebounds. For example, a skew indicator of the S&P 500 index - measuring the relative demand for buying bullish options versus selling bearish options - has dropped from 7% before the election to 4%, indicating a decrease in investor defensive sentiment. However, at other times this year, this indicator has been even lower, including in May when it was at 3%. DeSimone said, "This indicates that the market is maintaining a certain level of caution, rather than being completely complacent."