(Jan 12): US stocks declined on Monday as the Trump administration upped its attacks on the Federal Reserve (Fed), bringing the “sell America” trade back to the forefront.
The S&P 500 Index dropped 0.06% at 9.59am in New York, dramatically pulling back from the previous session’s all-time closing high. The Nasdaq 100 Index declined 0.1%, while the Cboe Volatility Index hovered at around 15.
“The US equity and fixed income markets regard the independence of the Federal Reserve as paramount,” said Sam Stovall, chief investment strategist at CFRA Research. “Each is keenly aware that over-stimulating the economy through overly aggressive rate cuts would fan the flames of inflation.”
Fed Chair Jerome Powell said the central bank had been served grand jury subpoenas from the Justice Department in relation to his congressional testimony on ongoing renovations of the Fed’s headquarters. Powell added that the threat of criminal charges was a “consequence” of the Fed not following Trump’s preferences for interest rates.
President Donald Trump’s latest broadside against the Fed poses a threat to the US stock market, according to JPMorgan’s trading desk. Any de-escalation of the president’s push to upend Fed independence may result in a short-term buying opportunity, according to Andrew Tyler, head of global market intelligence at JPMorgan.
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“Markets are rebelling against President Trump’s attack on Chair Powell and the Federal Reserve,” said Scotiabank’s Derek Holt. “The assault on the Fed is dominating markets but the reaction may be limited thus far by virtue of the fact it’s a national holiday in Japan and so Asian market reaction was constrained overnight.”
Trump has frequently butted heads with Powell and the Fed since the beginning of his second stint in the White House. This has included attempting to fire Governor Lisa Cook, as well as repeated calls for aggressive rate cuts. The threats to the central bank’s autonomy have rattled markets before.
The “sell America” sentiment has rippled through markets following the Trump administration’s escalating attacks on the Fed. The dollar and Treasuries have also dropped alongside stocks.
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“Political pressure on the Fed is a market risk — not a sideshow,” said Mark Malek, chief investment officer at Siebert, adding that bond markets are “signalling concern early” and that higher yields “pose a real challenge for growth stocks”.
Precious metals and mining stocks rallied on Monday as gold and silver climbed to records in a broad-based rally linked to the Fed being threatened with criminal indictment. JPMorgan Chase & Co, Capital One Financial Corp and other US banks sank after Trump called on credit-card companies to cap interest rates at 10% for a year.
UnitedHealth Group Inc slipped after the Wall Street Journal reported that a Senate committee investigating the company’s practices found that the health insurer deployed “aggressive tactics” to collect payment-boosting diagnoses for its Medicare Advantage members.
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