They have flocked to stock funds at a pace rarely seen since 2008, but some warn that shares look expensive historically
4 min
A roaring market rally since the U.S. presidential election has driven up the price of everything from shares of technology and manufacturing giants to cryptocurrencies. Many investors are betting it has room to run.
Investors have stampeded into funds tracking U.S. stocks and picked up trades that would profit if the rally that recently sent the S&P 500 above 6000 for the first time reaches new heights.
U.S. equity exchange-traded and mutual funds drew nearly $56 billion in the week ended Wednesday, the second-largest weekly haul in records going back to 2008, according to EPFR data. Such funds have drawn inflows for seven consecutive months, the longest streak since 2021, when a dizzying market melt-up sent stocks to repeated records.
Driving the optimism? Many investors said they expect lower taxes and fewer regulations during Donald Trump ’s second term as president.
Dominic Rizzo, a technology portfolio manager at T. Rowe Price , said tariffs could boost U.S. manufacturing, driving a surge in domestic spending and investment. Other investors are simply breathing a sigh of relief that the election has passed.
The share of investors surveyed by the American Association of Individual Investors who said they were bullish jumped to 49.8% this past week, while the share of those reporting a neutral sentiment dropped to the lowest level since 2022. About 40% of those surveyed said the U.S. election made them more optimistic about the market.
“Animal spirits are alive and well right now,” Rizzo said.
Rizzo oversees shares of Nvidia and other tech giants. After a big run-up, he is still optimistic about the group ahead of Nvidia’s earnings report Wednesday. Investors are also fixated on the presidential transition and how it might shape the market’s winners and losers.
Some market watchers caution that investors might be too quick to latch on to policies that could boost markets, while ignoring plans that might stir inflation and market volatility.
Stocks wobbled at the end of the past week, and bitcoin retreated. Trump’s appointment of the vaccine skeptic Robert F. Kennedy Jr. as health and human services secretary pressured several stocks including Moderna and Pfizer . Shares of Tesla , which soared after the election and pushed the company’s market cap back above $1 trillion, have stumbled in recent sessions. Shares of Trump Media & Technology Group fell 12% for the week.
Still, the S&P 500 index and the Nasdaq Composite closed Friday within about 3.2% of their respective record highs. With just weeks left in 2024, the S&P 500 is on track to jump more than 20% for the year, the second consecutive year of gains of that magnitude. It is a back-to-back advance that has been seen only three times over the past century, according to Deutsche Bank.
Joe Johnson, 37, said he has waded into hot stocks including Nvidia, Tesla and a crypto play, MicroStrategy . His portfolio has swelled this year, and he is feeling so good about the market that he is thinking about pouring his cash pile into stocks. He is eyeing such industrial giants as Caterpillar and Deere , which he believes will benefit from a strong economy.
“I am bullish on the market,” Johnson said. “The euphoria everyone is feeling is warranted.”
Johnson said he is excited about Trump’s presidency and expects his policies to benefit his small business in Maryland, which sells boat-maintenance kits, engine parts and protective covers.
Many investors have piled into segments of the market such as small companies, which are especially sensitive to the economy.
The Russell 2000 has risen almost 2% since the election, and one of the largest exchange-traded funds tied to the index attracted $3.9 billion in inflows in a single session this month, the most since June 2007. Money managers, meanwhile, have increased positions that would pay out if the rally continued, driving net bullish bets in the futures market to the highest level in more than four years.
Some of the riskiest corners of financial markets are thriving too. Three of the top five days for trading in call options, trades that give the right to buy shares, have occurred this month, according to options records going back to 1973. That has pushed up the cost of bullish trades that would profit if stocks soared.
A frenzy of trading in cryptocurrencies sent bitcoin prices above $90,000 and unleashed a historic rush into crypto funds. Dogecoin, a speculative coin backed by nothing, shot up after Trump revealed plans to create a government-efficiency department called DOGE, to be co-led by Elon Musk , a dogecoin evangelist. Its $55 billion market cap now tops that of Ford Motor.
Trading in the over-the-counter market, which includes riskier securities such as penny stocks, has surged 27% in November from the same time last year, according to OTC Markets Group.
Some said stocks are looking expensive after their recent run. The S&P 500 recently traded at 22 times its expected earnings over the next 12 months, above its five-year average of roughly 20. A Bank of America strategist, Savita Subramanian, called market sentiment and positioning “dangerously bullish” in a note to clients Friday.
Bond investors have been sending a different signal, driving the benchmark 10-year Treasury yield to 4.426% on Friday, up from 4.072% around a month ago. They are banking on bigger deficits and higher inflation in the years ahead. Federal Reserve Chair Jerome Powell indicated Thursday that the central bank will take its time to trim interest rates, pressuring bonds and stocks.
One measure closely tracked by investors, the equity risk premium —or the gap between the S&P 500’s earnings yield and that of 10-year Treasurys—shrank close to zero, the lowest level since 2002, according to Dow Jones Market Data. That means the reward for owning stocks over bonds is dwindling.
“The market is awfully expensive to have a melt-up,” said Rob Arnott , the founder and chairman of Research Affiliates.
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Strong family financial planning can help reduce taxes and support younger generations. From intrafamily loans and asset gifts to inheritance disclaimers, strategic cooperation can create meaningful financial benefits—when families have the trust and structure to make it work.
4 min
Happy is the family whose members—parents, grandparents and grown children—trust each other enough to cooperate on shared goals, especially financial ones. When that is truly the case, Uncle Sam’s tax rules can help as well.
This matters especially now that mortgage rates are above 7%, and many families are looking for ways to help younger members. If the elders have resources and are confident younger ones can cooperate, a family loan could make homeownership possible while providing the elders with a useful income stream.
Other strategies can actually lower taxes, such as when funding 529 plans or Roth IRAs, or when someone inherits a traditional IRA with required withdrawals larger than they will need.
Here are three strategies useful for functional families.
It is perfectly legal for families to lend money to a relative for a down payment or even a private mortgage.
But it is important not to cut corners, says Ryan McKeown, a CPA with Modern Wealth Enhancement in Minnesota. If the loan is for a down payment, be honest with the mortgage provider and have a formal agreement. The lender owes tax on the interest payments received.
If the loan is for a private mortgage, both sides should have legal representation with a formal written agreement, including payment terms. The lender owes tax on the interest, and the borrower often can deduct it if he or she itemizes.
To avoid IRS trouble, the interest rate shouldn’t be lower than the agency’s Applicable Federal Rate at the time of the loan. Currently that is about 5% for loans longer than nine years; about 4.5% for loans three to nine years; and about 4% for loans three years or less. Currently, traditional mortgage rates are generally above 7%.
In addition, the lender could use the $19,000 annual gift-tax exemption (described below) to forgive some or all of the interest or principal annually. If both lenders and borrowers are married, that is up to $76,000 a year. There is no tax for the borrower on such forgiveness, because it is from a gift.
If you’re going this route, McKeown advises against having a fixed plan to forgive the debt. Instead, do it in one-off letters specifying the amount—and keep careful records. Otherwise the IRS might try to treat the loan as a taxable gift.
Powerful tax-saving moves for families often use gift-tax provisions. Under current law, anyone can give anyone else up to $19,000 of assets annually, free of gift tax. That means a married couple with three grandchildren could give them a total of $114,000 in 2026.
The gifts can be cash or other assets, like stock. For noncash gifts, the cost basis—which is the starting point for measuring taxable gain after a sale—“carries over” to the recipient. So if someone buys $1,000 of stock and gives it away when it is worth $5,000, the recipient’s cost basis is $1,000. If the recipient later sells the shares for $8,000, the taxable gain is $7,000.
Here’s an example showing how gifts could save a family taxes. Grandma is a widow of modest means, while her child and spouse have prospered. The couple has two children, and they want to contribute $5,000 to a 529 college-savings plan for each—but they need to sell stock to do it. Their tax rate on the sale would be 18.8%, and they would need to sell about $11,000 of stock.
However, Grandma’s federal tax rate on the stock sale is 0%. If the couple gives $10,000 of shares to Grandma, she could sell them, pay no tax, and fund the grandchildren’s 529 plans. This saves about $1,000 of tax.
These moves are legal, and they could be used in other ways, such as to help a young person fund a Roth IRA.
But trust among family members is essential: Under the law, givers can’t put conditions on a gift. Grandma could use her stock proceeds to take a cruise, but she makes 529 contributions instead.
Mark Sellner, a retired tax attorney and CPA living in Sarasota, Fla., uses this strategy. His children sell stock he gives them and fund 529 plans for his grandchildren.
The family’s tax savings aren’t huge, but he likes other benefits. The sales by his children don’t boost his adjusted gross income, which in turn could raise his Medicare Irmaa premiums or his 3.8% surtax on net investment income.
Sellner doesn’t worry about his children using the funds for another purpose.
“There can’t be any strings attached to gifts. Of course, it is up to us to decide whether to make them in the future,” he says.
Two caveats: The “kiddie tax” applies to most children under age 24, and it is levied at the parents’ rate on investment income above $2,700 in 2026. Consider this before making gifts to a young person.
Investors who give away stock also forgo the step-up, an important provision that exempts assets held at death from capital-gains tax.
Sellner knows he’s losing a step-up, but says, “The children could use a little more now. Why should they wait 20 years to get it?”
A disclaimer is a highly useful strategy in which one heir renounces an inheritance in favor of another heir. Assuming family members cooperate, this can save taxes.
Here’s one example. Dad died and had a large traditional IRA that he left to Mom. She has enough assets and income to cover her expenses, and she lives in a state with a stiff estate tax. The inherited IRA would put her estate over the threshold.
Also surviving are three young-adult children. If Mom disclaims all or part of Dad’s IRA within nine months of his death, that amount could go directly to the children. They will have 10 years to empty the account, and the family as a whole will likely save estate and income taxes.
Disclaimers have many key details, especially regarding beneficiary documents. Although heirs have great freedom in choosing what assets to disclaim, the rules about who gets disclaimed property are rigid. It is best if the original owner names tiers of heirs so that if one disclaims, the next recipient is clear.
