Market Meltdown: Stocks and Bonds Plunge in Widespread Retreat from US Assets

Wall Street faced a fierce downturn recently. Stocks fell sharply, joining the slide of the dollar and longer-dated Treasuries. This chaos was fueled by President Trump’s disapproval of Jerome Powell’s interest-rate strategy, which added to investor anxiety amidst a global trade war.

Despite Trump’s claims that tariff negotiations were on track, the market continued to plunge. Major U.S. stock indexes, including the S&P 500, dropped over 3%. At the same time, the dollar weakened significantly, hitting a 15-month low. The 10-year Treasury yield hovered near 4.4%, indicating growing unease from investors.

As worry spread, safe-haven assets like gold surged past $3,400 an ounce. The Swiss franc also gained ground against the dollar, attracting those looking for stability in America’s turbulent economy. In the U.S. credit market, protection costs against potential defaults increased, signaling risk aversion from traders.

Trump expressed his view that inflation was minimal, calling for “preemptive cuts” to interest rates. This perspective contradicts the Federal Reserve’s recent inflation data, which suggests inflation is still above the target. The uncertainty surrounding Trump’s ability to fire Powell has raised concerns about the independence of the Fed, a cornerstone of U.S. economic stability.

Experts weigh in on the risks of losing this independence. Michael Brown, a research strategist, stated that firing Powell could lead to severe market volatility and a rush to sell off U.S. assets. Similarly, Paul Singer of Elliott Investment Management warned that the U.S. dollar might lose its status as the world’s reserve currency if political pressures on the Fed continue.

Historical trends show market responses during periods of economic uncertainty. For instance, in the late 1970s, political pressure influenced the Fed, leading to rampant inflation and loss of confidence in the dollar—lessons that still resonate today. Recent statistics also reveal that there’s a growing trend among investors moving away from U.S. Treasuries to more stable options like European bonds. At Deutsche Bank, reports indicate a substantial reduction in U.S. Treasury holdings by Chinese clients.

Overall, the current climate reflects a complex interplay of politics and market forces. As U.S. indices saw sharp declines, the outlook for economic growth grows foggy. Experts like Bruce Kasman from JPMorgan Chase highlight the risk of a global recession stemming from trade conflicts, cautioning that the immediate effects might not be felt directly but could have lasting repercussions.

As the situation develops, it’s clear that vigilance and adaptability will be necessary for investors navigating the current landscape.

Source link

Bloomberg, Jerome Powell, Donald Trump, financial markets, Christopher Wong, Austan Goolsbee, Fed