The U.S. stock market has recently made an impressive rally after the result of the election. Financial markets hate uncertainty, as this causes a lot of volatility. However, now that a new U.S. president has been elected, we can focus on the fundamental analysis and events that will have a severe impact on the trend and direction of the U.S. stock market.

All major U.S. indices had a nice rally in the days following the election, but a few specific sectors outperformed the major indices: sub-industries such as investment banking and brokerage, regional banks, life and health insurance, consumer finance, reinsurance, asset management, and custody banks. Why is that?

First of all, the market expects further inflation and growth, and an increase in interest rates, all possibly in the next month. U.S. Treasury yields have rallied, bond prices have fallen, and risk factor favors buying stocks. Higher interest rates can add to the profitability of financial stocks.

In the midst of this bullish momentum, even Wells Fargo (WFC) and Deutsche Bank (DB), two stocks with recent financial troubles, for different reasons, rallied. It could be that institutional investors have decided to shift their portfolio positions early and take advantage of this trend, but if the U.S. stock market continues to rise, will the financial sector also be a winner in the next year? If the Fed decides to raise the main interest rates, then this scenario is very possible, and if the new U.S. president takes action on some of his campaign promises, such as growth in infrastructure, the financial sector could be a winner in the next year.

However, as we reach all-time highs on major indices, a lot of caution is required as profit-taking opportunities will appear sooner or later. It’s always a good idea to focus on valuation and to buy at dips, rather than to chase stocks after a strong rally.