Precious metals are breaking records. The US dollar is falling. Stocks are collapsing.
Monday is all “Sell America” trade after Federal Reserve Chair Jerome Powellthe explosive announcement that he is under criminal investigation — what market participants see as a sign from the president Donald TrumpThe interest is to remove the political independence of the central bank.
“It’s unambiguously risk-free,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.
Guha said a so-called Sell America exchange could play out similar to what was seen in April, when the the stock market collapsed after Trump first announced his plan for broad and high tariffs. Global investors will place a higher risk premium on U.S. assets, while safe havens like gold should get a boost in response to the turmoil, he said.
THE Dow Jones Industrial Average fell almost 500 points at one point in the morning exchanges, while the US Dollar Index shed 0.2%. But the popular safe havens of gold and money jumped to historic highs in the session.
“Obviously the market doesn’t like this,” Ed Yardeni, president of Yardeni Research, told CNBC on Monday.
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JPMorgan’s trading team also highlighted “Sell America” as a major market driver on Monday.
Beyond the Powell investigation, the office noted that oral arguments at the Supreme Court are planned to determine whether Trump can Lisa Cook, Governor of the Fed later this month. In addition to that, bank stocks fell after Trump called for a credit card interest rate capped at 10% over one year.
“Overall, the theme of ‘Selling America’ may be the dominant narrative,” JPMorgan wrote to clients.
To be sure, JPMorgan said the macroeconomic and corporate environment supports a tactically bullish stance in the stock market. However, the team believes that concerns over the independence of the Fed call for caution in the short term.
Get Morning Squawk delivered straight to your inboxHow concerned is the market?In a video statement, Powell presented the investigation as being driven by the fact that the Fed has set interest rates based on what it believes is best for the economy, rather than “following the president’s preferences.” Trump has repeatedly chastised Powell for what he considers rates to be too high and has previously proposed removing the Fed chairman from his post.
Markets had become accustomed to such “hostile jaws” and stopped trading around Fed independence without further evidence of risk, according to Evercore ISI’s Guha. But the announcement of Powell’s investigation may offer reason to put concerns about the Fed’s independence back at the forefront of traders’ minds, he said.
Economists have widely distributed in support of Powell and stressed that they viewed the investigation as an attack on the Fed’s apolitical stature. Janet Yellen, former Fed Chair, Monday told CNBC she was “surprised that the market was not more concerned.”
THE CBOE Volatility Index (VIX) – also known as the Wall Street Fear Indicator – rose during Monday’s session. But it hasn’t broken out of its recent range, which may mean investors aren’t yet sure this will be a long-term story.
Stocks rebounded from Monday’s session lows late in the morning, signaling once again that investors may be hesitant to engage in the “Sell America” trade until there are more indications that Trump will pursue his credit card plan and his attempt to oust Powell. THE S&P500 surged to a new all-time high after falling earlier in the day.
Yet international markets have outperformed U.S. stocks – with the iShares MSCI ACWI US ETF (ACWX) rising about 0.8% – underscoring the Fed-related stress on investors.
“Volatility is likely to dominate markets in the near term,” said Mark Malek, chief investment officer at Siebert Financial. But the VIX’s quiet move shows “that investors either expect all of this to stop, or they just don’t want to focus on it as we enter fourth-quarter earnings season later this week.”
— CNBC’s Jeff Cox contributed to this report.