U.S. stocks tumbled as President Donald Trump continued to verbally attack Jerome Powell, calling on the Federal Reserve chair to cut rates as signs mount the president’s trade war is pushing the economy toward recession. The dollar fell with long-dated Treasuries.
The S&P 500 Index fell 2.9% at 12:01 p.m. in New York on trading volume that was 33% below its 20-day average at this time of the day. The Nasdaq 100 Index declined 3.0%. The Cboe VIX Index hovered near 35. Tesla Inc. plunged 8.9% ahead of its earnings results postmarket Tuesday. Sweetgreen Inc. shares fell 9.52% after the salad restaurant chain said its COO would leave the company.
Trump posted on his social media site that he favors “preemptive cuts” to interest rates and called the Fed chairman a “loser.” The broadsides started last week and raise the question of whether the central bank can retain the independence from political influence that helps underpin faith in the American financial markets.
“The market doesn’t like the Fed’s independence being challenged,” said Joe Saluzzi, co-manager of trading at Themis Trading. “The market can at least make an attempt at predicting what an independent Fed will do. If their independence is challenged, then more erratic (unpredictable) decisions could be made. And the market does not like unpredictability.”
The sell-America trade gathered momentum across other asset classes, too. The dollar and Treasuries slid, pushing the yield on 30-year bonds higher by as much as 10 basis points in thinner-than-normal, post-holiday trading.
The mix of risks is fueling concern about the paths of growth and inflation — and how the Fed can balance them. While traders are pricing in at least three interest-rate cuts in the U.S. this year, former New York Fed President Bill Dudley wrote in a Bloomberg Opinion column that policymakers will likely move slower than anticipated.
Trump took to Truth Social on Monday, escalating his attack on the Fed chair insisting there was “virtually” no inflation and it was time for “preemptive cuts.” The last reading of the Fed’s preferred inflation gauge remains above the central bank’s target.
All 11 S&P 500 sectors were lower, with stocks also under pressure from Trump’s incoherent trade policies. Some 96% stocks in the S&P 500 traded in the red, the most since April 4, when the index lost 6% as Powell said the Trump administration’s tariffs “could have a persistent impact on inflation.”
The broad index down by almost 10% since Trump unveiled sweeping tariffs on most U.S. trading partners, only to pause many of them a week later. It has fallen 16% from a February record. Nvidia Corp. sank 5.3%, Delta Air Lines Inc. slid 4.2% and Constellation Energy Corp. dropped 8.1%.
Other notable movers were Netflix Inc., which rose 2.14% after the streaming giant logged record profit in the first quarter. Meanwhile, Tesla tumbled as Wedbush’s Dan Ives said the electric-vehicle maker faces a “code red” moment.
While the Trump administration has been “transparent” with its desire to lower rates, the “ultimate outcome is impossible to predict,” said Mark Hackett, chief market strategist at Nationwide. The current push is similar comments made in 2018 and 2019, Hackett added, though “like with tariffs, this is likely negotiating in public with the intention of jawboning a decision, as a firing would undoubtedly result in market disruption.”
The so-called “sell America” trade has gathered momentum as concern over Trump following through with threats to oust Powell as Fed chair bubbled over. National Economic Council Director Kevin Hassett said Friday that Trump was assessing whether he would be able to fire Powell, with the comments raising new questions on whether the central bank could maintain its longstanding independence.
The threats have also hit the U.S. dollar, sending a gauge of the greenback to a 15-month low. Christopher Wong, a strategist at Oversea-Chinese Banking Corp. in Singapore, said that the Fed’s credibility being called into question could “severely erode confidence in the dollar.”
Trump has been vocal over the head of the central bank not moving fast enough to slash interest rates. While legal scholars say the president cannot dismiss a Fed chair easily and Powell has no intention to resign, the White House’s comments on the matter are giving investors something to think about.
“Our view remains that the president lacks the power to remove Powell as monetary policy is a legislative function rather than an executive branch function,” TD Cowen’s Jaret Seiberg wrote in a note published Sunday evening. “That differs from other independent agencies. That said, we do not see legal questions stopping Trump if he is determined to act.”
Earnings season continues with Tesla, Alphabet Inc., Boeing Co. and Intel Corp. among the big names to report this week. Tesla will issue first-quarter earnings on Tuesday, with the electric-vehicle maker contending with an Elon Musk-induced brand crisis and uncertainty from tariffs.
Results thus far have been “mixed,” according to Canaccord Genuity’s Michael Graham.
“Earnings results from these companies have yet to fully reflect tariff impacts, and it may take a few months before conclusions can be reached due to tariff-related pull forward of spending and choppy hard data,” Graham wrote in a note on Monday.
Meanwhile, data compiled by Morgan Stanley’s Michael Wilson show the S&P 500’s earnings revisions breadth — or analyst estimates upgrades versus downgrades — is now at levels rarely witnessed, approaching downside extremes in the absence of a recession.
“It’s going to be difficult for companies to appease investors this quarter, and they are very hesitant to provide guidance and using the tariff turmoil to lower expectations,” said JonesTrading’s Dave Lutz.
Meanwhile, in a move that upped the ante in the ongoing trade war, China warned countries against striking deals with the U.S. that could hurt the interests of Beijing. While respecting nations resolving trade disputes with the U.S., Beijing “resolutely opposes any party reaching a deal at the expense of China’s interests,” the Ministry of Commerce said in a statement on Monday.
