The VIX index fell sharply last week by over %, while the market capitalization of the seven giants increased by approximately billion dollars.

Last week, the US stock market experienced a strong rebound as the prospect of Trump returning to the White House and the potential Republican victory in Congress eased market tensions. Meanwhile, the Federal Reserve cut interest rates as expected, which also helped sustain the post-election rally. With the resolution of these two major risk events, the Chicago Board Options Exchange Volatility Index, which measures market volatility, saw a significant drop last week. Moving forward, investors will refocus on the outlook for monetary policy and corporate earnings, while continuing to assess the impact of Trump's policy expectations.

Fed interest rate cut expectations fall

The latest data shows that the U.S. economy maintains stable growth. The U.S. service sector once again delivered a strong performance in the month, helping to offset the weak trend in manufacturing and once again driving robust overall economic growth at the start of the fourth quarter. Due to intensified competition, the average price increase rate in the service sector has significantly declined. Meanwhile, business expectations for the coming year have rebounded from the lows of the month. The job market remains stable, with the U.S. Department of Labor reporting that the number of initial jobless claims rose by 0.3 million to 2.1 million last week due to the ongoing impact of Hurricane Milton. Recent business surveys show that labor demand shows no signs of weakening. The University of Michigan Consumer Confidence Index indicates that at the beginning of the month, U.S. consumer confidence reached a seven-month high, with households' expectations for the future climbing to the highest level in over three years, and they are more optimistic about the Republican administration's prospects.

Senior economist at Oxford Economics, Schwartz, told the First Financial Daily that the continuous expansion of the service sector means that consumer spending, including service spending, will continue to grow rapidly in the fourth quarter and throughout the year. With the election results announced, there may be further room for economic improvement in the future.

The results of the Federal Reserve's interest rate meeting were released last week, returning to a traditional loose mode after a month of base point reductions. Expectations for continued rate cuts have recently receded as economic data continues to show economic resilience, and inflation may rise due to potential tariffs and increased government spending by the Trump administration. Powell stated that a decision on what policy action to take in November has not yet been made, but in the face of uncertainty, the Fed is prepared to adjust its assessment of the appropriate pace and endpoint of monetary policy.

The yields on medium and long-term U.S. Treasury bonds have shown significant volatility, closely linked to interest rate expectations. The yield on the closely watched 2-year Treasury note rose by 10 basis points to 4.96% this week, while the benchmark 10-year Treasury note surged and then retreated, falling by 10 basis points to 4.57%, ending a seven-week streak of consecutive gains. Federal funds rate futures indicate that the probability of a 25-basis-point rate cut in December has dropped from nearly 60% last week to around 40%, and investors have also reduced their pricing for policy easing next year.

Schwartz told Yicai that the Federal Reserve's rate cut is widely expected, and it is anticipated that there will be another cut in the coming month as monetary policy still needs to be readjusted. It is worth noting that the Federal Reserve has abandoned the phrase "boosting confidence" when describing inflation moving towards its target, which indicates a less dovish stance and could be a subtle acknowledgment of increased uncertainty due to the election, without explicit mention. On the other hand, debates about the long-term equilibrium federal funds rate or where this normalization cycle will end may become more intense. Schwartz believes that the Federal Reserve seems prepared to raise its estimate of the neutral rate in the near term, with a high likelihood of adjustment when it updates its dot plot in the coming month.

Can the market go further?

Last week, the US stock market saw multiple milestones, with the S&P index briefly breaking through the key threshold and the Dow Jones crossing it smoothly, both achieving their best performance since November 2016. Investors believe that Trump's victory is expected to bring better business policies and regulatory environments for American companies, further boosting the economy.

State Street Global Advisors' research head Bartolini () said that just last Wednesday, billions of dollars flowed into U.S.-listed funds, setting a new record for capital inflows the day after the election, surpassing the previous record of $1.4 billion set in 2020 after Biden's election.

Dow Jones Market Data shows that all sectors rose over the past week. The non-essential consumer goods sector increased by %. Energy, industrials, financials, and technology stocks also exceeded the overall index's % gain. Technology companies continued to be a highlight, with the total market capitalization of seven companies increasing by nearly $100 billion in a week. Among them, Nvidia's market capitalization reached an astonishing $1.1 trillion, surpassing Apple's record closing market capitalization of $1.09 trillion on January 3rd. Nvidia's stock price has more than doubled so far this year, and analysts generally believe that when it announces its earnings on February 21st, its quarterly revenue will grow by more than % to $7.4 billion.

Zurich Insurance Group's chief market strategist Miller said: "Due to the prospects of policy reforms, the US stock market has tailwinds and potential from now until the end of the year." Morgan Stanley strategist Wilson believes that the S&P index could continue to climb to points by the end of the year, as investors breathe a sigh of relief after the US presidential election and experience a "fear of missing out" (FOMO) mentality towards the end of the year.

Charles Schwab wrote in its market outlook that the market interprets the U.S. election results as a boon for corporate earnings. Recently, a series of favorable factors such as corporate earnings expansion and seasonal bullishness have been dense, and the significant upward trend in bond yields has not stopped the flow of funds. Given that the forward P/E ratio of the S&P index has reached a historical high, companies will need to achieve stronger earnings growth. So far, the bull market seems to still be in control. The institution believes that from a short-term perspective, historical highs are a bullish signal, and there is no evidence yet that the post-election rally has been exhausted. There are still some important third-quarter earnings reports in the coming week, and inflation reports on the consumer price index (CPI) and producer price index (PPI) will also be received. If history is any guide, then technical indicators may imply a short-term action of "covering" profits, but the timing is difficult to predict, and the next rebound may require other momentum stimuli.