Nasdaq, S&P, and Dow finished sharply lower as Trump feuds with Powell
Wall Street’s major averages closed lower on Monday, while Treasury yields delivered a mixed performance, as investor anxiety mounted over perceived efforts by the Trump administration to challenge the Federal Reserve’s independence.
The tech-heavy Nasdaq Composite (COMP:IND) bore the brunt of the selloff, sinking 2.5%. The benchmark S&P 500 (SP500) fell 2.3%, while the blue-chip Dow Jones Industrial Average (DJI) declined 2.4%.
All 11 sectors of the S&P ended the session in the red, with Consumer Discretionary and Information Technology suffering the steepest losses. Conversely, Consumer Staples emerged as the day’s relative outperformer, though it, too, posted a decline.
In the bond market, U.S. Treasury yields moved in mixed directions. The shorter-end U.S. 2-Year Treasury yield (US2Y) slipped 3 basis points to 3.76%, while the U.S. 10-Year Treasury yield (US10Y) climbed 8 basis points to 4.41%.
“While financial markets are already mired in trade war uncertainty, a ‘Fed independence’ debate seems to be picking up steam on the back of President Trump's weekend remarks on Federal Reserve Chair Jerome Powell,” SA analyst Ahan Vashi of the Quantamental Investor said.
“Despite being in a sizeable drawdown, equity markets are trading at historically elevated trading multiples. Given a weakening corporate earnings outlook, investors must remain highly selective with equities and continue to proactively manage portfolio risk," Vashi added.
Kevin Hassett, the director of the National Economic Council, disclosed on Friday that President Trump is considering firing Powell. "Investors seem less than happy with the idea of a politicized Fed—the U.S. dollar and long-dated government bonds have weakened. There are checks on the president’s authority," UBS' Paul Donovan said.
The U.S. dollar (DXY) saw a significant fall on Monday, as it traded close to 98.
Fed governors need to be confirmed by the Senate. The FOMC chair does not have to be the Fed chair. However, some of these checks depend on the rule of law, Donovan added.
Moreover, Neil Dutta, head of economic research at Renaissance Macro added: “I think we’re already in the worst case scenario for the economy,” he said during a CNBC interview, noting that replacing Chair Jerome Powell with a politically compliant figure could trigger internal Fed conflict and ultimately harm the economy.
Monday’s economic calendar saw the U.S. Leading Indicator Index fall 0.7% to 100.5 in March, steeper than the -0.5% consensus, according to data released by The Conference Board on Monday.
Earnings remain a key focus this week, with major players such as Tesla (TSLA), Alphabet (GOOG)(GOOGL), Intel (INTC), and IBM (IBM) all scheduled to report.
As for stocks that were on the move, shares of Tesla (TSLA) slipped 5.7% after longtime bull and Wedbush analyst Dan Ives called it a “code red” moment ahead of Q1 results.
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