U.S. stocks suffered steep losses on Monday as President Donald Trump ramped up his attacks on Federal Reserve Chair Jerome Powell, prompting investors to worry about the central bank’s independence even as they grapple with the effects of Trump’s ongoing, erratic trade war.
All three major indexes tumbled more than 2%, and the U.S. dollar continued to get hammered, sinking to a three-year low against a basket of major currencies. The equity selloff was less intense in Canada, thanks largely to another surge in gold prices to fresh record highs.
Trump escalated his criticism of Powell on Monday, saying the U.S. economy is headed for a slowdown “unless Mr. Too Late, a major loser, lowers interest rates NOW,” in a bellicose Truth Social post which raised concerns over the Fed’s autonomy.
The Fed has been resistant to lowering rates too quickly because it does not want to allow inflation to reaccelerate after slowing nearly all the way down to its 2% goal from more than 9% three years ago. While Wall Street generally loves lower rates, the bigger worry would be that a less independent Fed would be less effective at keeping inflation under control.
“Countries that have an independent central bank grow faster, have lower inflation; they have better economic outcomes for their people,” said Jed Ellerbroek, portfolio manager at Argent Capital Management in St. Louis. “And politicians trying to influence the Fed is a really bad idea, and it’s very scary for the market.”
Also Monday, the Sino-U.S. trade rift deepened after Beijing warned other countries against striking deals with the United States at China’s expense, adding fuel to the spiraling tariff war between the world’s two largest economies. Meanwhile, many traders were left disappointed that no new tariff deals between the U.S. and other countries were announced over the long weekend.
In a troubling signal, investors were also shunning longer-term U.S. government bonds. Typically during an equity market selloff, they would buy American debt as a safe-haven play, pushing their yields lower and prices higher. But by late afternoon, the U.S. 10-year Treasury yield was up about 7 basis points. Canadian bond yields were also higher Monday.
“It’s not good when you have inflation, interest rates and the [U.S.] dollar all lower on the same day, over the same week and the same month,” said Brian Nick, managing director and head of portfolio strategy with Newedge Wealth of Stanford, CT. “That kind of pattern tends to occur in emerging markets; it doesn’t happen in the United States. It’s a sign that people don’t want to hold your currency any more and that even your bonds aren’t appealing.”
All the uncertainty striking pillars at the center of financial markets means some investors say they’re having to rethink the fundamentals of how to invest.
“We can no longer extrapolate from past trends or rely on long-term assumptions to anchor portfolios,” strategists at BlackRock Investment Institute said in a report. “The distinction between tactical and strategic asset allocation is blurred. Instead, we need to constantly reassess the long-term trajectory and be dynamic with asset allocation as we learn more about the future state of the global system.”
The S&P 500 closed 16% below its February 19 record closing high. If the bellwether index closes 20% below that all-time high, that will confirm the index has entered a bear market.
The Dow Jones Industrial Average fell 971.82 points, or 2.48%, to 38,170.41, the S&P 500 lost 124.50 points, or 2.36%, to 5,158.20 and the Nasdaq Composite lost 415.55 points, or 2.55%, to 15,870.90.
All 11 major sectors in the S&P 500 ended in negative territory, with consumer discretionary and tech suffering the biggest percentage losses.
First-quarter earnings season shifts into higher gear this week with dozens of closely watched firms due to report. So far, of the 59 companies that have reported, 68% have beaten Wall Street expectations, according to LSEG data.
As of Thursday, analysts expect aggregate first-quarter S&P 500 earnings growth of 8.1%, year-on-year, down from the 12.2% growth projected at the beginning of the quarter, per LSEG.
Notable earnings on the docket this week include Magnificent Seven members Tesla and Alphabet, and a host of high-profile industrials including Boeing, Northrop Grumman, Lockheed Martin and 3M.
The S&P/TSX composite index closed down 183.95 points, or 0.76%, at 24,008.86, snapping its five-session winning streak.
While most major sectors were down, materials was up about 0.5%, thanks to gold miners rallying, benefiting from the weaker U.S. currency. U.S. gold futures settled 2.9% higher at US$3,425.30.
Uranium shares were particularly hard-hit, with shares of leading uranium mining companies falling between 5% and 10%. Energy Fuels Inc., a uranium and rare earths-focused miner, fell 10% over tariff worries and curbs by China on rare earths exports. Denison Mines, a Saskatchewan-based miner, closed 7% lower and Nexgen Energy, another uranium miner, fell 6%.
On Wall Street, artificial intelligence heavyweight Nvidia dropped 4.5% after Reuters reported that Huawei Technologies planned to begin mass shipments of an advanced AI chip to customers in China as early as next month.
Tesla dropped 5.8% after Reuters reported that the production launch of its stripped-down version of the Model Y was delayed.
FIS gained 2.4% after a brokerage upgrade.
Declining issues outnumbered advancers by a 4.76-to-1 ratio on the NYSE. There were 77 new highs and 180 new lows on the NYSE. On the Nasdaq, 1,205 stocks rose and 3,174 fell as declining issues outnumbered advancers by a 2.63-to-1 ratio. The S&P 500 posted one new 52-week high and nine new lows while the Nasdaq Composite recorded 28 new highs and 184 new lows. Volume on U.S. exchanges was 13.89 billion shares, compared with the 18.87 billion average for the full session over the last 20 trading days.
Reuters, The Associated Press, Globe staff