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With market enthusiasm around Donald Trump's presidential-election victory pushing stocks and crypto to record highs, JPMorgan says investors looking for signs of rally fatigue should be watching the Treasury-bond market.

In new research, the firm's equity-strategy team said the 5% level on the 10-year Treasury yield could be an inflection point for US equities. It's currently trading at about 4.3%.

"We think that around 5% the impact of bond yields on equity valuations starts to turn, from positive/reflationary one, into the rising concerns over the sustainability of the upcycle and the increasing risk of accidents," the team wrote on Monday, led by the firm's head of global equity strategy, Mislav Matejka.

Government-bond yields went on a tear following Trump's win on expectations that the president-elect's immigration and protectionist trade policies would drive inflation and force the Federal Reserve to raise rates. The 10-year note surged as much as 21 basis points to 4.47% on Wednesday, the day after the election.

Adding to upward pressure on bond yields is the prospect that "bond vigilantes" could register their displeasure with a ballooning federal deficit by selling Treasurys.

"If the Trump administration runs excessively stimulative fiscal policy, with lots of spending and tax cuts, leading to even wider deficits, I think then that may cause the bond vigilantes to push yields up to levels that create problems for the economy," Ed Yardeni, the president of Yardeni Research, told DealBook in a newsletter published on Saturday.

In the absence of a move above 5% in the 10-year Treasury, JPMorgan said the market's near- to medium-term direction would be dictated by which policies Trump prioritized.

JPMorgan said it saw struggles in stocks if the president-elect's second term kicked off with immigration curbs and higher tariffs. Meanwhile, Trump focusing on tax cuts would be a stocks-positive outcome, the firm said.

Read the original article on Business Insider