Why the stock market shrugs off Trump political chaos
Stock investors have largely shrugged off the criminal investigation into Federal Reserve Chairman Jerome Powell; This is the latest example of the market leaving political risks behind.
Dow Jones Industrial Average It initially fell nearly 500 points on Monday. Investors were concerned that 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 emerged along with the broader index. S&P 500 and small cap focused Russell 2000 – they managed to cut losses and ended the day at all-time highs.
The reversal shook up conventional market sentiment, which suggested that political turmoil could drag stocks lower in the short term as traders hedged their bets. Some market participants wondered whether Powell’s announcement of the investigation would revive the “Sell America” trade that places a higher risk premium on U.S. assets.
But vocal support for Powell from leading economists around the world and open opposition from some Republicans in D.C. may have reassured investors that this was a temporary flare-up in tensions rather than a course-changing moment for Fed independence.
Economists reiterated Powell’s framing that the investigation was less about the central bank’s overhaul and more about interest rates not falling as quickly as Wall Street had hoped. Former Fed Chair Janet Yellen said she was “surprised the market wasn’t more worried.”
Republicans’ opposition to the investigation became increasingly clear on Monday, which may reassure traders that the dispute will not escalate further. Sen. Thom Tillis, R-N.C., said he would block any of Trump’s nominees from entering the central bank after the investigation becomes public.
While stocks defied bearish expectations, other asset classes showed evidence that investors were taking notice of the investigation. US dollar loses value against safe-haven metals gold And silver climbed to new heights. US stocks have not seen as much gains as their international counterparts and have underperformed the global basket this week.
CBOE Volatility Index (VIX) The index, known as Wall Street’s fear gauge, jumped on Monday. But it failed to break out of its recent trading range, signaling to investors like Siebert Financial CIO Mark Malek that investors aren’t too worried yet.
“Investors are waiting for all of this to be over, or they don’t want to focus on that as we head into Q4 earnings season,” Malek said.
Indeed, on Tuesday, investors turned their focus to the latest inflation data and corporate earnings reports.
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