It took just a few words from President Trump in a meeting with airline executives on Thursday to trigger a sharp breakout for US stocks. Those words came at an opportune time for the markets, as there had been some growing concerns that Trump’s fiscal stimulus promises would take a backseat to the administration’s less market-oriented political priorities. Those concerns were mitigated however, when the President brought investor optimism roaring back to the forefront with the simple words, "we’re going to announce something over the next two or three weeks that will be phenomenal in terms of tax."

Largely as a result of this renewed promise of corporate tax reform, the major US stock indexes once again rallied to fresh all-time highs on Thursday. The Dow Jones Industrial Average climbed sharply to reach 20200, while the S&P 500 blew past its recent record high of 2300 to exceed 2310.

While this Trump-driven rally has certainly pushed equity markets significantly higher since the presidential election in early November (more than 8% for the S&P 500), the rise was far from a straight line. Periods of consolidation in December and January have highlighted market concerns that Trump’s controversial protectionist trade agenda could overshadow his business-friendly promises of tax cuts, lowered regulation, and higher spending.

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With his freshly articulated promise of corporate tax cuts on Thursday, though, Trump has once again boosted markets on little more than a few bold phrases. And apparently, markets are not quite done yet pricing-in the anticipated benefits of Trump’s yet-to-be-fulfilled promises.

The question now is, where do stocks go from here? The markets have been running (and over-extending) based largely on highly optimistic sentiment that essentially assumes full execution of Trump’s fiscal stimulus agenda. While it may be difficult to talk about the downside during such times of unbridled market optimism, the bears indeed continue to lurk in the shadows, ready to pounce when high expectations are inevitably under-met. With that said, the Trump rally continues for the time being. But the prospect of a significant pullback or correction grows ever stronger as the markets grow ever more complacent.

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