Donald Trump is back in the White House, and the stock market likes it.

Investors, relieved to have a clear election winner and excited by the prospect of tax cuts and deregulation, have sent US stocks soaring higher.

The Dow Jones Industrial Average closed above 44,000 for the first time on Monday. The S&P 500 had its best week of the year last week and the third-best week since the 1928 presidential election.

Actions by big banks have boosted hopes for an easier notion of regulation. Private prison companies are going for the moon as investors bet that mass deportations will increase demand for their services. And the crypto space is on fire as Trump has gone from a bitcoin skeptic to a believer.

And yet, the bond market has some concerns about Trump’s tax cuts could add trillions to the national debt and its massive tariffs and other policies could fuel inflation.

US Treasuries, sniffing a possible Trump victory, sold off in the weeks leading up to Election Day. And bonds continued to sell off last week as the full extent of Trump’s victory sent shock waves around the world.

Treasury rates, which move at opposite prices, rose, making mortgages and other debt even more expensive.

“The stock market loved the election result. But there is nervousness in the bond market. He’s more concerned about the size of the deficits and the possibility of inflationary tariffs,” said David Kotok, co-founder and chief investment officer at investment management firm Cumberland Advisors.

There are several reasons why Treasury rates have risen.

Stephanie Roth, chief economist at Wolfe Research, conducted an analysis that found two central forces at play: optimism about the economy and the outcome of the election.

The 10-year Treasury yield rose 0.4 percentage points this year, and three-quarters of that was driven by the election, according to Roth.

Another $8 trillion in debt?

“Everything about Trump is consistent with a higher rate environment,” Roth said.

Why?

First, investors are betting that the economy will grow even faster under Trump.

Second, the market is pricing in higher government deficits under Trump.

While the national debt was expected to rise significantly regardless of who won the White House, the impact is seen as potentially much greater under Trump. The president-elect proposed the full extension of the 2017 tax cuts and proposed lowering the corporate tax rate to 15 percent, as well as a full slate of other tax cuts.

Trump’s plans would add $7.75 trillion to the national debt over a decade, compared with $3.95 trillion under his opponent’s Vice President Kamala Harris, according to estimates by the Committee for a Responsible Federal Budget.

Almost two-thirds (65%) of economists polled by The Wall Street Journal recently said deficits would be higher under Trump than Harris.

“The lack of fiscal discipline is a concern,” Jeff Buchbinder, chief equity strategist at LPL Financial, wrote in a report Monday, adding that LPL doesn’t think rates will rise much.

Concerns about inflation

Many economists and investors fear that Trump’s economic agenda will be inflationary. In addition to the tax cuts, Trump has called for blanket tariffs on all $3 trillion of US imports. And his mass deportation proposals could raise prices, especially in sectors that rely on undocumented workers, such as housing and agriculture.

That’s why 68 percent of economists polled by the Journal said prices would rise faster under Trump than Harris.

“The bond market is not entirely convinced that the inflation genie is back in the bottle,” Buchbinder said.

Kotok noted that while Trump has claimed that foreigners will pay the cost of the tariffs, Americans are really the ones who will pay. And he pointed out that presidents have broad powers to impose tariffs.

“The tariff issue is a concern because it’s a sales tax,” Kotok said. “Tariffs are made by executive order. Congress gave authority to the president a long time ago. They won’t take it back, and no president would give it up without a fight.”

Wall Street is betting that the combination of higher inflation and faster growth under Trump will force the Fed to scale back its rate cut plans.

For whatever reason, Americans are already feeling higher borrowing costs as a result of the bond market selloff.

Even as the Fed cuts rates, mortgage rates rise again. A 30-year fixed-rate mortgage averaged 6.79 percent as of Nov. 7, up from 6.08 percent just after the Fed delivered a big rate cut in September, according to Freddie Mac.

“Regime Change”

For now, stock market investors don’t seem bothered by rising bond yields or these inflationary or debt concerns.

“Animal spirits are back,” Ed Yardeni, president of investment advisory firm Yardeni Research, wrote in a note to clients on Monday.

“The stock market jumped for joy that the election results were final, thus avoiding contested elections. Equity investors are also excited about the regime change to a more pro-business administration that promotes tax cuts and deregulation.”

Yarden expects faster economic growth to increase the amount of revenue the federal government collects, giving Washington more firepower to pay down the U.S. debt.

Of course, market veterans say they wouldn’t be surprised to see the stock market finally show its concerns about tariffs and inflation under Trump. It’s just not the focus now.

“The market is not yet focused on tariffs, which are quite negative. The market is overvaluing all the positives, maybe too much,” Roth said. “But I still wouldn’t lean against her. Maybe next year.”

Another rate hike could cause problems

There is also the risk that bond yields will continue to rise, making it more expensive for companies and individuals to borrow money. This could pose a number of problems for the economy and the stock market.

If rates move much higher, bond yields could prove enticing enough to lure investors’ cash away from the stock market — especially given how expensive U.S. stocks have become.

In addition, higher rates would act as a drag on the real economy by raising the cost of credit for both small businesses and consumers.

Not only that, but the higher Treasury rates rise, the more expensive it is for the federal government to finance its debt mountain — a mountain that could get much, much bigger under Trump.

As it stands, the national debt grows by $1 trillion roughly every 100 days, according to BTIG’s Isaac Boltansky.

“Higher rates would become problematic at some point. I don’t think we’re there yet,” Roth said.

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