Is stock-market Trumpophoria running out of room?

Donald Trumps transformation from stock-market bugaboo to postelection rally catalyst has been welcome news for investors. But some now wonder whether the re-emergence of euphoria is a signal to take some money off the table.

David Kotok, chairman and chief investment officer of Cumberland Advisors, which manages around $2 billion of assets for wealthy investors, said in a Monday note that his firm is no longer fully invested in the market.

Trumpophoria is a wonderful salve for stock market participants. We have had a marvelous year in our U.S. ETF accounts. But there comes a time to take some off the table and leave the excesses to others, Kotok wrote.

The S&P 500
SPX, -0.11%
is up more than 5% since Election Day on Nov. 8, leaving it up more than 10% for the year to date. The blue-chip Dow Jones Industrial Average
DJIA, +0.20%
is within shouting distance of the 20,000 milestone and has rallied nearly 8% since the election. Both indexes, and other U.S. benchmarks, have hit a string of records.

Expectations Trump will pursue an increase in infrastructure spending, large tax cuts and deregulation while muting his antitrade rhetoric have contributed to gains for stocks, as well as a heavy rotation into sectors expected to benefit from those policies. Its also sparked a brutal selloff in the bond market.

Read: 5 things to know about the Dows attempt to rally to 20,000 and beyond

Kotok said he used last weeks run to market highs to raise a cash reserve, with the firm lowering its stock allocation in steps. At the same time, Kotok seized opportunity in the tax-free bond sector. The selloff across the bond market saw tax-free bond yields back up to more than 130% of taxable Treasury bonds at the same time Treasury yields rose sharply, he said. Yields and bond prices move in opposite directions.

Opinion: Will Trump himself kill the Trump rally in stocks this week?

That means munis are now cheap, he wrote. But the sharp run-up for equities means that at best, stocks are fully priced. Kotok argues, in part, that a decline in the equity risk premiumthe excess return over the risk-free interest rate (U.S. Treasurys) that investors demand for taking on higher riskwarrants caution.

He elaborates:

There is little margin for a stumble now. Trumponomics has its limits, and a 2250 starting point on the S&P Index gives us reason to no longer be fully invested. Three flat years of earnings at $118 are expected to be replaced by about $123-4 in the coming year. Lets call it an 18-19 [price/earnings ratio] and an earnings yield of 5.5%. With treasury interest rates up and heading higher, the equity risk premium says the stock market is no bargain.

It has been an extraordinary year in the stock market. Earlier this year the equity risk premium was a full point higher and we were fully invested. A little profit in the bank now feels good.

Not all bulls are ready to curb their upside enthusiasm, however.

Jeffrey Saut, chief investment strategist at Raymond James, argued in a Monday that while a near-term pullback is certainly plausible, its unlikely to have a lasting impact. Instead, investors should ignore bear boos warning of bubbles, overpriced stocks, euphoria, etc.

Instead, he offered a recent history lesson:

Going into the Brexit vote many pros raised cash expecting stock market mayhem if the U.K. voted to leave the EU. If you will recall the odds makers thought it was going to be a stay in vote. Oops, because Brexit was a nonevent as we chronicled in these missives before the vote.

Fast forward to the U.S. presidential election, which everyone thought would be won by Hillary Clinton. Hereto, if you raised cash you felt good for about one hour as the markets dipped the morning after the election, but that was the only dip you got, and we were bullish. In point of fact, we actually made the case it really didnt matter who won; the stock market was in a position to rally. We have maintained that bullish bias since our models suggest the indices should grind higher into late-January/earlyFebruary.

Saut argues that its price direction rather than price level thats important and for now, thats pointing the way higher.

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