The stock market’s post-election euphoria, fueled by Donald J. Trump’s victory and a quarter-point rate cut by the Federal Reserve, has begun to cool. Investors are now sifting through mixed economic signals, recalibrating their expectations for the U.S. economy under the Trump administration.

The Week in Review: Key Market Movements

The S&P 500 slid 1.3% on Friday, ending the week down 2%. This marks a stark reversal from its 4.7% gain last week, the biggest weekly rise in over a year. The initial surge was driven by the resolution of election uncertainty, optimism around Trump’s pro-business agenda, and the Fed’s recent rate cut. However, that enthusiasm has waned as markets digest the potential long-term effects of Trump’s proposed policies and initial cabinet appointments.

Other key movements in the market:

• Nasdaq and Russell 2000: The tech-heavy Nasdaq dropped 3.4% this week, while the small-cap Russell 2000 fell 4%. Both indices reflect growing caution about economic growth and potential policy impacts.

• Cryptocurrency Surge: Bitcoin crossed the $90,000 threshold for the first time, bolstered by expectations of a crypto-friendly regulatory environment under Trump.

• Bond Yields: The 10-year Treasury yield edged up to 4.4% following stronger-than-expected U.S. retail sales in October, signaling resilient consumer spending but also higher borrowing costs.

• Dollar Strength: The dollar continued its climb, hitting a new high for the year midweek. While a strong dollar may reflect confidence in U.S. economic stability, it also poses risks to global trade and emerging markets.

The Fed’s Next Moves: Uncertainty Ahead

Federal Reserve Chair Jerome Powell signaled on Thursday that the central bank is in no rush to lower rates further. While inflation ticked up slightly in October, the Fed’s decision-making appears cautious, with diminishing expectations of a December rate cut. Powell’s remarks, coupled with ongoing inflation fears linked to Trump’s proposed policies, have left investors searching for clarity on the Fed’s path forward.

What’s Driving Market Sentiment?

The cooling enthusiasm highlights the tension between short-term optimism and long-term uncertainty:

• Business-Friendly Policies vs. Inflation Risks: While Trump’s pro-business rhetoric has excited some investors, fears of inflation and ballooning deficits weigh heavily on market sentiment.

• Interest Rates and Borrowing Costs: Rising bond yields and uncertainty around the Fed’s rate cuts are adding pressure to markets, particularly in rate-sensitive sectors like real estate and consumer finance.

• Crypto Momentum: Cryptocurrencies, buoyed by the prospect of favorable regulation, remain one of the few bright spots in an otherwise mixed market landscape.

The Takeaway for Investors

This week’s market movements underscore the importance of balancing optimism with caution. Investors should remain focused on diversification and long-term strategy while closely monitoring economic indicators, Federal Reserve actions, and evolving policy developments under the Trump administration.

What’s your take on the market’s recent swings? Are you optimistic about Trump’s economic policies, or are you hedging your bets? Let’s discuss!