Stock investors have largely ignored a criminal investigation into Federal Reserve Chairman Jerome Powell, the latest example of markets avoiding political risk.
of Dow Jones Industrial Average It initially fell nearly 500 points on Monday. Investors feared the investigation represented a broader push by President Donald Trump to strip the central bank of its autonomy in setting interest rates.
However, as the session progressed, the blue-chip index, along with the broader index, S&P500 Mainly small stocks russell 2000 — I was able to cut my losses and end the day at a high.
The turnaround went against conventional market wisdom, which suggests political turmoil could depress stock prices in the short term as traders hedge their bets. Some market participants were concerned that Powell’s announcement of the study could lead to a re-emergence of “sell America” trades that impose high risk premiums on U.S. assets.
But the vocal support of Mr. Powell from leading economists around the world, and the clear opposition of some Republicans in Washington, D.C., may have reassured investors that this was a temporary escalation of tensions rather than a watershed moment for the Fed’s independence.
Economists reiterated Powell’s framework that the investigation was not about central bank shakeups, but about interest rates not coming down as quickly as Wall Street expected. “I’m surprised the market isn’t more concerned,” former Federal Reserve Chair Janet Yellen said.
Republican opposition to the investigation became increasingly clear on Monday, which may give traders reassurance that TIF will not escalate further. Sen. Thom Tillis (R.N.C.) said he plans to block President Trump’s central bank nominee after the investigation is made public.
While stocks defied decline expectations, other asset classes showed evidence that investors are paying attention to research. The US dollar fell against other countries, but safe-haven metals fell. gold and silver Rising to new highs. U.S. stocks haven’t seen as much upside as international stocks this week, underperforming the global basket.
of CBOE Volatility Index (VIX) The index, known as Wall Street’s fear gauge, soared on Monday. However, it did not break out of the recent trading range. That suggests to investors like Mark Malek, chief investment officer at Siebert Financial, that they aren’t too worried yet.
“Investors are expecting all of this to blow over, or they just don’t want to focus on this as we head into fourth-quarter earnings season,” Malek said.
Indeed, by Tuesday, investors’ attention had shifted to the latest inflation data and corporate earnings reports.
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