Precious metals are breaking records. The US dollar is depreciating. Stocks are in trouble.
The “Sell America” trade was a hot topic Monday after Federal Reserve Chairman Jerome Powell’s bombshell statement that he was under criminal investigation, which market participants saw as a sign of President Donald Trump’s interest in stripping the central bank of its political independence.
“This is clearly a risk-off,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.
Guha said the so-called “Sell America” deal could play out similar to what was seen in April, when the stock market soared after President Trump first announced broad and significant tariff plans. Global investors place a high risk premium on US assets, while trading them as a safe-haven asset gold He said strong action should be taken in response to the disruption.
of Dow Jones Industrial Average At one point, the stock fell nearly 500 points in morning trading. us dollar index 0.2% reduction. However, gold and gold are popular as a safe haven. silver It rose to the highest value during the session.
“It’s clear the market doesn’t like that,” Ed Yardeni, president of Yardeni Research, told CNBC on Monday.
Gold COMEX, All Time
JPMorgan’s trading team also highlighted ‘Sell America’ as a key market driver on Monday.
In addition to the Powell investigation, the desk noted that oral arguments are scheduled for the Supreme Court later this month in a case over whether President Trump can fire Fed Director Lisa Cook. In addition, bank stocks fell after President Trump called for a one-year cap on credit card interest rates of 10%.
“Taken together, the theme of ‘Sell America’ may become the dominant narrative,” JPMorgan wrote to clients.
Indeed, JPMorgan said the macro and corporate backdrop supports taking a tactically bullish stance on the stock market. But the team said the overhang caused by concerns over the Fed’s independence is cause for caution in the short term.
How concerned is the market?
Powell insisted in a video statement that the investigation is not driven by “following the president’s wishes” but by the fact that the Fed sets interest rates that it believes are best for the economy. President Trump has repeatedly accused Powell of raising interest rates too high and previously threatened to fire the Fed chair.
Evercore ISI’s Guha said the market is used to such “hostile jaw-dropping” and has stopped trading on the Fed’s independence in the absence of evidence of further risks. But Powell’s investigation announcement could be the reason why concerns about the Fed’s independence are once again top of mind for traders, he said.
Economists have broadly supported Mr. Powell and said they see the survey as an attack on the Fed’s apolitical stance. “I’m surprised the market isn’t more concerned,” former Federal Reserve Chair Janet Yellen told CNBC on Monday.
of CBOE Volatility Index (VIX) The index, also known as Wall Street’s fear gauge, rose in Monday’s session. However, it did not exceed the recent range. This could mean investors aren’t yet convinced this will be a long-term story.
Stocks rebounded from their lows by late morning in Monday trading, further suggesting investors may be hesitant to engage in the “Sell America” trade until there are more signs that President Trump moves ahead with his credit card plans and efforts to oust Powell. of S&P500 The stock hit a new high after falling in the previous day’s trading.
Still, international markets outperformed U.S. stocks. iShares MSCI ACWI ex US ETF (ACWX) The stock is up about 0.8%, highlighting the Fed-related stress on investors.
“Volatility is likely to dominate the market in the short term,” said Mark Marek, head of investments at Sievert Financial. But the VIX index’s subdued movement indicates “that investors either expect this all to blow over or simply don’t want to focus on this as we enter fourth-quarter earnings season later this week.”
—CNBC’s Jeff Cox contributed to this report.
