Indexes in Wall Street shattered records on Wednesday following President Donald Trump’s optimistic congressional speech, but the rising likelihood of a rate hike by the Federal Reserve may put a break on the rally.

Trump’s economic plans to boost infrastructure spending, introduce deregulation, and lower taxes created a buying frenzy in U.S. stock markets. The Fed’s rising likelihood of hiking interest rates, on the other hand, led investors to start taking a selling position on Thursday.

Since Trump’s election on Nov. 8, the three main indices have gained more than 10 percent.

The Dow Jones has jumped 15.5 percent, the S&P 500 rose 12.2 percent, and the Nasdaq climbed 13.8 percent since the election.

On Wednesday, the Nasdaq climbed above 5,900 points and the S&P 500 reached 2,400 points for the first time in history. The Dow jumped above 21,000 points, having taken only 24 trading days to jump from 20,000 points to 21,000 — matching the fastest climb rate, last seen in May 1999.

Trump’s optimistic speech to a joint session of Congress Tuesday night played a major role in Wall Street’s record performance.

‘Trump’s tone was better’

Steve Goldman, who heads the Goldman Management trading firm, told Anadolu Agency that Trump’s “tone was different” from his usual public remarks. “It was less cantankerous. The tone was better,” he said.

During his campaign, when attacking his opponents Trump usually used a tone that was seen as ill-tempered, and sometimes combative. His tone speaking to Congress on Tuesday, on the other hand, was widely viewed as optimistic, according to various polls.

Just over three-fourths American viewers approved of Trump’s congressional speech, according to a CBS News/YouGov poll. While 57 percent of viewers said they had a positive reaction to the president’s speech, nearly 7 in 10 said Trump’s proposed policies would move the U.S. in the right direction, according to a CNN/ORC poll.

Goldman emphasized that companies have focused on Trump’s promise to lower corporate taxes, from 35 percent to 15 percent.

“The big thing is taxes … lowering taxes is what the market is hoping for, along with deregulation and pro-business sentiment. It would be a shock to the market if they don’t get lower taxes for corporations … As long as they [tax cuts] are coming, the market will feel confident. The sooner tax reform comes, it is better for the market,” he said.

Goldman said he does not see many risks against the stock market posting further gains. “To say earnings [of U.S. companies] would be lower than expected, where would that come from? The probability of that is slight. None of the forward-looking indicators are showing that,” he said.

“There is a market that has a great deal of momentum, and still wants to go higher,” he added.

‘Tax reform likely to provide smaller tailwind to corporations’

However, indexes in Wall Street may not climb higher if the tax reform does not create the anticipated impact.

“We are approaching the point of maximum optimism,” global investment banking firm Goldman Sachs said in its note on Fed. 17.

The bank warned that there is a possibility that Trump administration’s tax reform to lower corporate taxes may not have the level of positive effect that the companies are waiting for.

“S&P 500 will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tailwind to corporate earnings than originally expected,” it said in the note.

Fed rate hike looming

The risk against gains in Wall Street also increases with the Fed officials’ statements that another rate hike may come soon.

On Wednesday, Fed board of governors’ member Lael Brainard said, “it will likely be appropriate soon to remove additional accommodation.”

And, New York Fed President William Dudley said Tuesday “the case for monetary policy tightening has become a lot more compelling.”

After their statements, the likelihood of a rate hike on the Fed’s March 15 meeting jumped to 77 percent Friday, according to CME Group’s FedWatch tool.

Economic research consultancy Capital Economics said in a note that economic growth and inflation both picked up in the U.S., and “this has strengthened the case for the Fed to raise rates rapidly over the coming year or two.”

The stock market, however, may not be prepared for the Fed raising its benchmark interest rate.

‘Fed to raise rates faster than anticipated by markets’

“… We do expect the Fed funds rate to rise further this year than markets are currently discounting,” Capital Economics said in a note dated Feb. 27.

In addition, the unemployment rate is expected to fall further in the coming months, which in turn would increase wage inflation, the note said, and added “All this reinforces the case for the Fed to raise rates further and faster than anticipated by financial markets.”

The increased possibility of a rate rise heightened the value of the U.S. dollar against other currencies on Thursday, and created a downward pressure on crude oil prices that are indexed to the dollar.

Oil prices lost more than 2 percent on Thursday.

As a result, the three main indexes in the U.S. stock market lost between 0.5 to 0.7 percent on Thursday.

It was a different story on Friday.

Two of the top Fed officials increased the likelihood of a rate hike this month, but the stock market ended the day with gains.

“It will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect,” said Fed Chair Janet Yellen on Friday.

Fed Vice Chair Stanley Fischer also said Friday, “I think the advice that has been given by a large number of members of the Fed is correct, and I strongly support it.”

With their statements, the likelihood of a rate hike in March jumped to 79.7 percent, according to CME Group’s FedWatch tool on Friday.

The higher chance of an increase should have strengthened the dollar and lower crude prices, but just the opposite happened as investors are optimistic about Trump’s proposals to deregulate industries, cut corporate taxes and increase infrastructure spending, according to analysts.

Crude prices gained more than 1 percent Friday and Wall Street managed to stay in the positive territory.

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