Market Insider with Patti Domm Trader Talk with Bob Pisani

The rally is slowing down, and with good reason.

Last week the rally was based on financials, industrials, materials and health care. But one by one, sector leaders have wilted. Now, banks are one of the few leadership groups left.

The bank ETF KBE, a basket of big bank stocks, is up a phenomenal 14.8 percent since the election. All the big names are at 52-week highs.

It's going to be tougher to get those kinds of gains from here.

It's not that I have a crystal ball. I'm just using simple statistics.

The S&P financial sector is trading almost 20 percent above its 200-day moving average, a more than four-standard deviation move, according to Paul Hickey at Bespoke.

To give you an idea of how rare this is, a four-standard deviation move means that it will move outside that range once in more than 15,000 times. Think how rare that is. According to Hickey, it hasn't happened since 1989, and that's when record-keeping for this kind of stuff began!

What it means is that under the laws of mean regression, an extreme measurement such as this will tend to move toward its long-term average fairly soon.

In other words, it's statistically unlikely — highly unlikely — that bank stocks will keep rising.

But there are other, more fundamental, reasons why the bank euphoria may have run its course, at least without a lot more information.

Banks have been going up for three reasons:

1) Regulatory reform. There's something to this, but it's not clear how much of Dodd-Frank will be dismantled, and at any rate this would only benefit the biggest money-center banks, which certainly remain out of favor even with the mainstream Republicans who will likely be running the Trump administration. We simply need a lot more specifics.

Here's Adam Parker, equity strategist for Morgan Stanley:

"Clearly less regulation is a positive, but given the financials have moved way more than just interest rates alone would indicate they should have, we think some regulatory relief has begun to be priced in."

2) A steeper yield curve around stronger growth will certainly benefit banks, but we have no idea how steep the yield curve will be, and remember the Fed is the primary player here.

It's true interest rates have also moved on the perception that an infrastructure program will result in massive borrowing that will depress bond prices.

Again, here's Morgan Stanley: "We are not sure how much of the back-up in the long end of the interest curve — based on expected supply to fund an infrastructure program — will come to fruition (i.e., will there be as little gridlock as some investors think and how will it all be funded, public or private, if there is an agreement) and further, there is even more uncertainty about the Fed's path."

3) Corporate income tax reform. It would make sense that banks would be among the beneficiaries of tax reform, but there's not a lot of data to analyze how much would go to their bottom line.

Morgan Stanley noted that the last large move lower in corporate taxes was in 1986, when the rate went from 45 percent to 34 percent. In 1993 the rate went from 34 percent to 35 percent.

Finally, there's plenty of near-term events that could trigger more squeamishness on banks. The two obvious ones are the upcoming Italian referendum and the Federal Reserve meeting, both only a few weeks away.

Add it all up, and you get exactly what Guggenheim advised clients Monday:

"We believe valuations are now discounting stronger growth, higher rates, a steeper curve, and/or a less challenging regulatory environment, and causing the stocks to approach the top end of our fair value range."

The market has paused, and with good reason.

With the exception of banks, which are benefiting from the double-whammy of higher rates and the perception that less regulation is coming, sectors that had big moves up this week - energy, materials and health care - are all down today. Volume is still heavy, but we will not log the twice normal volume we have logged in the last two trading sessions.

We have stopped going up because we have reached the limits of the ability to move the markets on the powerful but vague ideas of fiscal stimulus, less regulation, and lower taxes. We need specifics, which will not be forthcoming immediately.

This will change - we are already getting names of those who will be on his transition team - but the next move in stocks will likely come when members of the cabinet are named and traders will bravely predict legislative outcomes from a list of names. That will likely take at least a couple more weeks.

In the meantime, a debate has raged on the floor of the NYSE for the past two days over exactly how Donald Trump won and Hillary Clinton lost. Many felt Trump brought in large numbers of voters, far more than anticipated. Others insisted support for Clinton was never as strong as for Obama in 2012.

We now have almost all the election results in, and the results are rather surprising.

Trading is back, another big beneficiary of a Trump win: many brokerage firms, stock exchanges and asset managers are up double-digits this week.

Stock volumes on Wednesday and Thursday were twice normal. TD Ameritrade's CEO, Tim Hockey, was on our air this afternoon, noting that the big volatility this week and particularly on election night "drove new investors and traders onto the platform." New accounts almost doubled the normal rate, he said.

After years of low volume and retail accounts fleeing, the trading community has suddenly gotten excited again.

Brokerage firms like E-Trade, Charles Schwab, and TD Ameritrade are flying this week, up double digits. There's three reasons for the rally:

1) A broad stock market rally helps them. "These are high beta stocks, so when the markets go up, you would expect them to go up even more," said Rich Repetto, who analyzes the brokerage and exchange community at Sandler O'Neill. "When markets go up, these firms go up even more."

2) When volume goes up, they benefit because they charge for trades. "People are trading more, so they are getting an earnings boost," Repetto explained. "Their fundamentals are improving."

3) Higher rates are also a benefit. They own banks that take the cash from trading accounts and invest it along the yield curve.

Exchanges like ICE and CME are also up double digits on hopes for higher trading.

Asset managers like Legg Mason and Waddell & Reed are also up for similar reasons, but there's an additional factor: hopes the much-hated Fiduciary Standard Rule will be repealed. That rule would require fiduciaries to put client interests ahead of their own, which everyone agrees is a good idea. But it also opens the door to the potential for large numbers of what may (or may not) turn out to be frivolous lawsuits that could bog the entire industry down for years.

Expect this to be a top priority for Trump's financial market team.

Now comes the hard part: getting the average American to buy more stocks. We all know that the number of households that own stocks has declined, which means stock ownership has become even more concentrated. The top 10 percent of households own the majority of stock.

The investment community would really love to change that.

After moving 100 points in the S&P 500 in a little more than three days, markets are taking a pause.

And with good reason. The sectors that are benefiting from the perception of less regulatory scrutiny — banks, health care, and to a lesser extent energy—are still up, but sectors that are being hit by concerns on higher interest rates (telecom, real estate, utilities) or trade concerns (technology) are trading down.

There is now a new trading mentality around the Trump victory.

When I came into the NYSE this morning at about 5:15 am ET, the few traders walking around were expecting a huge downdraft on the open with a big spike in volatility.

The only thing they weren't expecting was a flat opening.

That's exactly what happened.

It wasn't just flat, it was relatively calm. The NYSE had made some modest changes to the way stocks open following the August 24th 1,000 point drop in the Dow on the yuan devaluation (generally they made it easier to have a fully automated open), so that may have helped. But even then the number of stocks that opened above or below 5 percent was relatively modest.

And volatility—the CBOE Volatility Index (VIX), a measure of trader interest in buying protection against further market drops--declined to 16 and change. 16? Last night there were traders saying the VIX could open at 50.

What happened? Simply put:

1) The sectors that would benefit from a Trump infrastructure stimulus (metals/mining, steel, some Industrials),

2) Combined with the companies that would benefit from reduced regulations (pharmaceutical/biotech, energy, banks),

3) Combined with those that would benefit from higher interest rates (banks, insurance), or

4) Might benefit from increased defense spending (Lockheed, Raytheon)

Are being balanced against companies:

1) That might get hurt by trade issues (autos, some tech, some railroads), or

2) By the abolition of Obamacare, like hospital stocks.

Bottom line: Combine the potential for tax reform, fiscal stimulus, and lower regulations. Balance it against worries on trade. You have the market we are seeing today.

Finally, a shout-out to the little-understood (and sometime maligned) stock circuit breaker system. The eMini S&P 500 futures contract halted trading around midnight, when it fell 5 percent. Under the rules, it could have traded higher, but not lower, until the open. Which is what it did immediately—trade higher. That was the low. My point is that these circuit breakers were designed to pause the market during periods of high panic and uncertainty, and to give a few moments of reflection. That, it seems, is exactly what happened.

Now what?

The markets are grappling with the reality of a Donald Trump victory, which includes:

1) Lower stock indexes, but some clear winners. A drop of 5 percent or so is certainly expected, and there is still the risk of a longer fat tail, but not all stocks are dropping. Defense stocks like Raytheon and Lockheed Martin are likely early beneficiaries. Copper is up 2 percent, along with Caterpillar and Vulcan Materials, a sure sign that infrastructure plays will likely rally as well.

2) Less regulation. Early beneficiaries are likely to be industries that were threatened with heavier regulation under a potential Hillary Clinton presidency. That would principally include pharmaceuticals, but it may also include banks and even oil stocks, since its possible that lower support for renewable energy could benefit Big Oil.

3) Emerging market stock under performance. Developing economy assets are likely to remain under pressure for some time on currency issues, and concerns over trade.

4) Flight to "safety" to currencies like the Japanese yen and the Swiss franc. Both those currencies did strengthen, though both gave back much of their gains. This may force central banks to lower rates even more, or in the case of the Bank of Japan, deeper into negative rates. The European Central Bank may extend its quantitative easing (QE) program, now scheduled to expire in March 2017.

5) Lower chances of a Fed rate hike. With volatility up, the chances of a rate hike in December by the Federal Reserve diminish, though most traders feel the Fed could still make a case for a rate hike—though likely making clear the "glide path" would be even more shallow than it had previously indicated.