Stocks surged after Donald Trump's presidential win, but the market runs the risk of a pullback, according to Charles Schwab Chief Investment Strategist Liz Ann Sonders.
"I think the market probably has it right directionally -- it's just a magnitude question, which is where I think you run the risk that you get a bit of a pullback just because of the speed with which we've gotten to new highs," she said.
The Dow Jones Industrial Average closed at record highs last Thursday and Friday and wrapped up the election week to the upside by over 5%, the Dow's strongest week since 2011. The blue-chip index also closed at a fresh record high on Monday, as investors hoped for tax cuts and infrastructure spending under a Trump administration.
Sonders said investors should not assume that the Trump rally will persist without any hiccups.
What could derail the rally? A more hawkish Federal Reserve under a Trump administration, for one. Or Trump may prioritize what Sonders calls the more economically damaging parts of his policy platform: restrictions on and higher tariffs for global trade.
Sonders has an outperform rating on technology stocks, which have been left out of the Trump rally. She also has an outperform rating on financial stocks. Financials in the S&P 500 are up 11.4% over the past week, as investors expect less regulation and more interest rate increases during Trump's presidency.
Sonders also expects the Federal Reserve to announce a rate hike at its next meeting in December, "barring something out of the blue," she said.
The markets are pricing in a roughly 90% chance of a rate increase in December.
On Tuesday, Boston Federal Reserve Bank President Eric Rosengren said in a speech that a December liftoff "seems plausible."