A former Bridgewater executive shares why the stock-market rally has room to run — and 3 'unloved' trades primed for a boost

• US stocks have rallied postelection, with the S&P 500 up 3.5% since last Tuesday.
• Bob Elliott sees potential for continued upside due to expected tax cuts and lower regulation.

Investors have enjoyed an almost-everything rally in US stocks since the presidential election, with the S&P 500 up 3.5% since then.

While some strategists and money managers have warned the surge has only pushed high valuations even higher, Bob Elliott, the founder of Unlimited Funds, thinks the upswing can keep going.

In a November 7 interview with Business Insider, the former executive at Bridgewater Associates, the world's largest hedge fund by assets under management, said that the likely outcome of a red sweep means that investors will begin to account for the benefits of tax cuts and lower regulation more than they might have under a divided government outcome.

"There's most likely more room to run to price in that expansionary fiscal policy ahead," Elliott said. "Valuations are certainly elevated, but the power of over-easy monetary and fiscal policy, relative to conditions, is likely stronger than any concern about valuation in the near-term for most investors."

Not only have investor expectations been adjusted, but the uncertainty that has kept many investors in safer assets has now been removed and should leave more inflows, Elliott said.

"A lot of the clouds have cleared, and so it's very likely we see those folks who remained cautious through this week start to allocate capital, particularly through the end of the year," he said.

In terms of fiscal policy, Elliott said that Republicans would likely extend the Tax Cuts and Jobs Act, which will keep corporate and individual taxes lower than they were likely to have defaulted to under a Democratic administration or split government.

The amount of mergers and acquisitions should also increase thanks to lower regulations, he said.

Tariffs and the large-scale deportation of migrants would be aspects of Trump's agenda that could be damaging to growth, Elliott added, though it's unclear how likely these initiatives are to be carried out, For example, tariffs could just be bargaining chips being put forth by Trump to negotiate new trade terms with other countries.

"We probably won't really know what that path will look like until the second half of 2025," he said.

Until then, the outlook is bullish for "everything but bonds," Elliott said.

But three areas within the broader stock market should be primed for more upside than others. A solid macroeconomic backdrop and falling rates have typically been factors that are good for cheaper stocks, he said, and they should get more of a boost relative to other areas of the market in the near future.

"When you get these types of conditions where you have reasonably strong economic conditions and a loosening or an easing of policy, that often will cause liquidity to take advantage of or flow to unloved corners of the market," he said.

He continued: "So areas that have been underperforming — things like small-caps, energy stocks, financials — areas like that that just have not seen the sort of top-line demand that things like tech stocks have seen."

Investors can gain exposure to these areas of the market through funds like the Vanguard Small-Cap ETF (VB), the Energy Select Sector SPDR Fund (XLE), and the iShares US Financials ETF (IYF).