The post-election rally in US stocks lost momentum on Tuesday as investors assessed whether the recent buying frenzy has been overdone and what Donald Trump's Cabinet picks could mean for policy. Wall Street analysts are signaling that the surge in stocks could soon sputter after lifting the major gauges to record highs, and the market is pondering the policy impact of Trump's likely Cabinet choices.

Navigating the Shifting Tides of the Trump Trade

Stocks Retreat as Yields Rise

The Dow Jones Industrial Average (^DJI) slid about 0.4%, or nearly 200 points, while the S&P 500 (^GSPC) and the tech-heavy Nasdaq Composite (^IXIC) both fell roughly 0.2%. The breather in equities came as Treasury yields ticked higher, with the 10-year Treasury yield (^TNX) adding about 8 basis points to hit nearly 4.39%. The move lower in stocks was accompanied by a rise in yields, as investors grappled with the potential implications of Trump's Cabinet picks and the prospect of tighter monetary policy.

Investors Ponder the Policy Impact of Trump's Cabinet

The market is closely watching the policy impact of Trump's likely Cabinet picks, particularly the selection of Florida Sen. Marco Rubio as secretary of state. Rubio is known as a China hawk, and his appointment has raised concerns about the potential for tougher trade policies and tariffs, which could weigh on Chinese stocks and stoke inflation worries.

Crypto and "Trump Trades" Lose Some Momentum

The record-breaking rally in Bitcoin (BTC-USD) also lost some steam, with the cryptocurrency trading near $86,340, up about 5% from the previous day. Other "Trump trades," such as Tesla (TSLA) and crypto-linked stocks like Coinbase (COIN), also struggled to maintain their recent gains, as investors took a more cautious approach.

Inflation Expectations and the Fed's Next Move

Investors are also closely watching economic data, particularly the upcoming reports on the Consumer Price Index for October and retail sales data, which will be key inputs for the Federal Reserve's policy decision at its December meeting. The Fed's actions will be closely scrutinized as the Trump administration prepares to take office, with the central bank's ability to navigate the shifting economic landscape a crucial factor in the market's performance.

Valuation Concerns and the Outlook for Equities

Despite the recent rally, some market analysts are expressing concerns about the high valuations of US stocks, with the S&P 500 trading at 22.2 times 2025 earnings estimates, well above historical averages. However, others argue that the continued demand for stocks, driven by factors like 401(k) flows and company buybacks, could support further gains, even in the face of elevated valuations.As the market navigates the shifting tides of the Trump trade, investors will need to carefully weigh the potential policy implications of the incoming administration's decisions, the trajectory of inflation and the Fed's response, and the sustainability of the recent rally in the face of lofty valuations. The coming weeks and months are likely to be marked by heightened volatility and uncertainty, underscoring the importance of a well-diversified investment strategy and a keen eye on the evolving economic and political landscape.