Another day, another round of new highs for U.S. stocks. The main catalyst for the upward movement is trade optimism.

I’ve warned you (repeatedly) that trade hopes could quickly deflate, as they have so many times in the past. As the dour comedian Larry David might say: curb your enthusiasm.

But when it comes to this fickle trade war, Wall Street seems infused with unreasoning optimism. The resilience of this decade-long bull market has spawned a new generation of Pollyanna Wall Street professionals. It’s as if they have no sense of history and no recognition that bear markets occur.

But let’s enjoy the gains while we can.

The Dow Jones Industrial Average, the S&P 500, and the tech-heavy NASDAQ indices all closed at record highs Monday, amid reports that the U.S. and China were nearing a trade deal. Semiconductor stocks, which have been under pressure from tariff fears, rallied. The Dow rose 190.85 points (0.68%), the S&P 500 rose 23.35 (0.75%), and the NASDAQ rose 112.60 (1.32%).

Monday’s rally also boosted small-cap stocks, pushing the Russell 2000 index to a new 13-month high. I’ve recently recommended increasing your exposure to small caps.

As of this writing on Tuesday morning, the three main U.S. stock indices were all trading in the green, notching free records as trade optimism reigned.

Trade deal hopes, combined with better-than-feared third-quarter operating results, have propelled the main indices to record levels this month. The S&P 500 reported an average decline in earnings (-2.2%) for the third straight quarter, not great but not as bad as originally expected.

Retailer Best Buy (NYSE: BBY) beat on earnings and revenue this morning before the opening bell, suggesting that the fourth quarter will be sanguine for retailers and equity markets.

Among S&P 500 companies, 75% reported actual earnings per share (EPS) above estimated EPS for Q3, exceeding the five-year average of 72%. The utilities sector reported the highest earnings growth in Q3 of all 11 sectors in the S&P 500, at 10.1% (see table).

As I’ve written in recent columns, you should rotate toward defensive sectors, which fared well in the third quarter.

The economic news continues to be mixed. The Chicago Fed’s national activity index for October dipped to a reading of -0.71, from negative -0.45 in September. However, The Dallas Fed manufacturing index rose to -1.3 in November from -5.1 in the previous month.

Some sectors of the economy aren’t buying into the cheerfulness over trade. Reports surfaced Monday that Chinese importers are hedging their bets against trade uncertainty by boosting their purchases of Brazilian soybeans.

It’s not just corporations that are hurting from the trade war. China has responded to tariffs by shifting its acquisition of key agricultural commodities, notably soybeans, from America to alternate sources such as Brazil and Russia.

The big loser? It’s not China. It’s the U.S. Farm Belt, which is part of President Trump’s political base. Farm loan delinquencies and bankruptcies in the U.S. are at six-year highs.

China is the world’s biggest soybean importer, but it’s now subsidizing a big increase in the country’s domestic production of soybeans, in addition to buying this vital foodstuff from Brazil and Russia. That leaves farmers in the American heartland out of luck.

Whether it’s tractor-riding farmers or blue-chip manufacturers, tariffs are hurting businesses with greater overseas exposure.

Mega-merger of brokerage giants…

In a deal announced Monday, Charles Schwab (NYSE: SCHW) said it will acquire TD Ameritrade (NSDQ: AMTD) in a $26 billion all-stock transaction. The merging of the two biggest publicly traded discount brokers will create a behemoth with more than $5 trillion in client assets.

The news reflects disruption and consolidation on Wall Street. In recent months, major brokers have dropped commission fees for trading.

The cost-effective synergies that brokerages reap from consolidation allow them to plow greater investments and marketing into services geared toward higher margin derivatives trading, which can be dangerous for inexperienced traders.

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And therein lies the risk for average retail investors. Commissions on conventional trades are trending to zero, but brokerages are making up the difference by pushing riskier trading. Even for veteran investors, the key is getting the advice you need.

The shadow of Brexit…

Investors appear to be in denial about several risks. One of these risks is Britain’s planned exit from the European Union, otherwise known as “Brexit.”

Former British Prime Minister Tony Blair said on Monday that Britain was in chaos and that neither political party, Conservative nor Labour, deserved to win the national election scheduled for December 12.

“We’re a mess,” Blair asserted yesterday. “The buoyancy of the world economy has kept us going up to now, but should that falter, we will be in deep trouble.”

Among all the worries about Brexit, the most pressing is whether the EU’s big banks face jeopardy that will cascade into the global economy. Deeply indebted and economically troubled countries such as Italy could be the first dominoes to fall, with European banks unable to act as backstops.

As Britain’s government flails and expectations for a “soft” Brexit wane, look for the European financial services sector to hit a bad patch of turbulence. It’s a pressing concern for London, the financial services hub for the Continent. Big banks already are fleeing to competing cities, such as Paris and Berlin.

One way to protect your portfolio from Brexit is to avoid financial stocks with outsized exposure to Europe. The stocks of U.S.-based companies with domestically derived revenue and earnings are more prudent bets.

You can still make money in this bull market, without exposing your portfolio to unnecessary risks. Enjoy the bull run, but don’t let unbridled enthusiasm cloud your judgment.

Questions or comments? I’m here to help: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.