The roaring rally in US stocks lost steam on Tuesday as investors assessed whether the recent buying frenzy has been overdone and what President-elect Donald Trump's Cabinet picks could mean for policy. The major indices slid, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all posting losses as Treasury yields ticked higher.

Investors Grapple with Overbought Conditions and Policy Implications

Stocks Retreat as Yields Rise

The Dow Jones Industrial Average (^DJI) slid nearly 0.8%, or almost 350 points, on Tuesday. The S&P 500 (^GSPC) fell more than 0.2%, and the tech-heavy Nasdaq Composite (^IXIC) was down roughly 0.1%, paring earlier losses. The breather in equities came as Treasury yields ticked higher, with the 10-year Treasury yield (^TNX) adding about 12 basis points to hit around 4.43%.Wall Street analysts are signaling that the post-election surge in stocks could soon sputter after lifting the major gauges to record highs. Investors have raised their exposure to US stocks to an 11-year high, according to Bank of America, and those bullish bets lay the ground for potential profit-taking, Citi strategists said.

Trump's Cabinet Picks Raise Policy Concerns

At the same time, the market is pondering the policy impact of Trump's likely Cabinet picks. Florida Sen. Marco Rubio has been tapped for secretary of state, joining other high-profile China hawks on the team. The prospect of tougher tariffs dragged on Chinese stocks and gave weight to worries that the next president's economic plans could spur inflation.Boeing (BA) was a laggard in the Dow, falling more than 2.5%, as the company posted sharp declines in October due to worker strikes. Both the S&P 500 and Dow had their worst day since Oct. 31.

The 'Trump Trade' Cools Off

The post-election rally has not been limited to traditional stocks, as the so-called "Trump trade" has also fueled gains in cryptocurrency-related stocks and Tesla (TSLA). However, this trade has taken a breather on Tuesday, with shares of Coinbase (COIN) and Robinhood (HOOD) declining after recent surges, and Tesla slipping more than 5% after a previous rally.Bitcoin (BTC-USD), on the other hand, continued its record-breaking rally, coming within reach of touching $90,000. Investors will be closely watching to see if the cryptocurrency crosses the $90,000 threshold for the first time ever in overnight trading.

Inflation Data in Focus

Attention now turns to Wednesday's report on the Consumer Price Index for October, which will be watched for signs that inflation is cooling as the Federal Reserve desires. Federal Reserve Bank of Minneapolis president Neel Kashkari said that a surprise to the upside in inflation data between now and the Fed's December meeting could prompt the central bank to pause cutting interest rates.As the market navigates the post-election landscape, investors will need to carefully weigh the implications of Trump's Cabinet picks, the potential for profit-taking in overbought stocks, and the direction of inflation and interest rates. The coming weeks and months are likely to bring continued volatility and uncertainty as the new administration takes shape.