Threats to the Federal Reserve’s Independence Hammers Stocks

The S&P 500 Index ($SPX) (SPY) Monday closed down -2.36%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -2.48%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.46%.  June E-mini S&P futures (ESM25) are down -2.42%, and June E-mini Nasdaq futures (NQM25) are down -2.47%. 

Stock indexes plummeted on Monday, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 falling to 1-1/2 week lows.  Stocks and the dollar sold off Monday as the Federal Reserve's independence is challenged, with President Trump contemplating possibly firing Fed Chair Powell.  Selling in stocks intensified Monday based on remarks made last Friday by National Economic Council Director Hassett, who said President Trump has been asking about possibly removing Fed Chair Powell over his interest rate decisions.  The dollar sank to a 3-year low Monday, and gold rallied to a new record high as the prospect of firing Powell further reduces confidence in the dollar and may spark foreign investors to liquidate their dollar holdings, including stocks and Treasuries. 

Monday's US economic news was negative for stocks after Mar leading indicators fell -0.7% m/m, weaker than expectations of -0.5% m/m and the largest decline in 17 months.

Bitcoin (^BTCUSD) rose more than +3% to a 3-1/2 week high as Monday's slump in the dollar to a 3-year low bolsters demand for cryptocurrencies as President Trump's criticism of Fed Chair Powell and threats to fire him raises concerns about the Fed's independence and weighs on the dollar and dollar assets.

The markets are discounting the chances at 16% for a -25 bp rate cut after the May 6-7 FOMC meeting.

This week's market focus will be on Q1 corporate earnings results and any changes to US trade policies.  On Wednesday, March new home sales are expected to climb +0.7% m/m to 681,000.  The Fed Beige Book will also be released on Wednesday.  Thursday brings March capital goods new orders nondefense ex-aircraft and parts (expected +0.1% m/m).  Also, March existing home sales on Thursday are expected to fall -2.8% m/m to 4.14 million. Friday brings the revised University of Michigan April consumer sentiment index (expected no change at 50.8).

Q1 earnings reporting season is in full swing.  According to data compiled by Bloomberg Intelligence, the market consensus is for Q1 year-over-year earnings growth of +6.7% for the S&P 500 stocks, down from expectations of +11.1% in early November.  Full-year 2025 corporate profits for the S&P 500 are seen rising +9.4%, down from the forecast of +12.5% in early January.  

Overseas stock markets on Monday settled mixed.  The Euro Stoxx 50 was closed today for the Easter Monday holiday.  China's Shanghai Composite rose to a 2-week high and closed up +0.45%.  Japan's Nikkei Stock 225 closed down -1.30%.

As a summary of recent tariff developments, President Trump said on April 4 that he would temporarily exempt consumer electronics from reciprocal tariffs and the baseline 10% global tariffs.  However, a 20% tariff still applies to electronics shipped from China. On April 9, President Trump announced a 90-day pause on higher reciprocal tariffs on 56 nations but left the new 10% baseline tariff on virtually all nations in place. Meanwhile, the EU on April 10 said it would delay for 90 days the implementation of 25% tariffs on 21 billion euros worth of US goods sent to Europe.

On March 4, President Trump imposed 25% tariffs on Canadian and Mexican goods and doubled the tariff on Chinese goods to 20% from 10%.  On April 2, President Trump signed a proclamation to implement a 25% tariff on US auto imports.  The tariffs will initially target vehicles fully assembled outside the US and, by May 3, will expand to include automobile parts made outside the US.  On April 5, a 10% baseline tariff for virtually all nations took effect. 

On April 4, China raised tariffs on all US goods to 125% from 84% in retaliation for the US raising tariffs on Chinese goods to 145%. Tit-for-tat retaliation worsened US-China trade tensions after China last Tuesday ordered its airlines not to take any further deliveries of Boeing's jets, and the US government barred Nvidia from selling its H20 chips to China last Wednesday.

Interest Rates

June 10-year T-notes (ZNM25) Monday closed down -11.5 ticks.  The 10-year T-note yield rose +8.4 bp to 4.409%.  June T-notes retreated Monday because President Trump may move to seek the removal of Fed Chair Powell, which would question the Fed's independence, erode confidence in the dollar, and spark foreign selling of dollar assets, including Treasuries.  Also, supply pressures are bearish for T-notes as the Treasury will auction $213 billion of T-note and floating-rate notes this week, beginning with Tuesday's $69 billion auction of 2-year T-notes.  T-notes recovered from their worst level after Monday’s stock slump sparked some safe-haven buying of Treasuries.

European government bonds did not trade on Monday, with markets closed for the Easter Monday holiday.  Last Thursday, the 10-year German bund yield fell to a 1-1/2 week low of 2.452% and finished down -3.7 bp to 2.472%.  Last Thursday, the 10-year UK gilt yield dropped to a 1-1/2 week low of 4.547% and finished down -3.7 bp to 4.566%.

ECB Governing Council member Muller warned that US trade tariffs and higher public spending in Germany could stoke inflation.

Swaps are discounting the chances at 92% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Magnificent Seven stocks were under pressure Monday and weighed on the broader market.  Tesla (TSLA) closed down more than -5% and Nvidia (NVDA) closed down more than -4%.  Also, Amazon.com (AMZN) and Meta Platforms (META) closed down more than -3%.  In addition, Alphabet (GOOGL) and Microsoft (MSFT) closed down more than -2%, and Apple (AAPL) closed down more than -1%.

Chip stocks retreated Monday to pressure the overall market.  Marvell Technology (MRVL) closed down more than -4%, and ARM Holdings Plc (ARM) closed down more than -3%.  Also, Advanced Micro Devices (AMD), Broadcom (AVGO), Micron Technology (MU), ASML Holding NV (ASML), Lam Research (LRCX), and KLA Corp (KLAC) closed down more than -2%.  In addition, Applied Materials (AMAT) and GlobalFoundries (GFS) closed down more than -1%. 

Health insurance stocks fell for a second session Monday after UnitedHealth Group cut its full-year earnings outlook last Thursday.  As a result,  United Health Services (UHS) closed down more than -10% to lead losers in the S&P 500, and Humana (HUM) and Molina Healthcare (MOH) closed down more than -6%.  Also, UnitedHealth Group (UNH) closed down more than -5% to lead losers in the Dow Jones industrials, and HCA Healthcare (HCA) closed down more than -5%.  In addition, Elevance Health (ELV) and Centene (CNC) closed down more than -4%, and CVS Health (CVS) and Cardinal Health (CAH) closed down more than -3%. 

Energy producers moved lower Monday as the price of WTI crude fell more than -2%.  As a result, APA Corp (APA) and Diamondback Energy (FANG) closed down more than +4%.  Also, Devon Energy (DVN), Chevron (CVX), and Baker Hughes (BKR) closed down more than -3%, and Haliburton (HAL) and Phillips 66 (PSX) closed down more than -2%.

Salesforce (CRM) closed down more than -4% after D.A. Davidson downgraded the stock to underperform from neutral with a price target of $200.

Discover Financial Services (DFS) closed up more than +3% to lead gainers in the S&P 500 after US regulators approved Capital One Financials' purchase of Discover. 

AngloGold Ashanti Plc (AU) closed up more than +2% to lead gold-mining stocks higher after the price of gold soared to a new all-time high. 

Fidelity National Information (FIS) closed up more than +2% after TD Cowen upgraded the stock to buy from hold with a price target of $92. 

Netflix (NFLX) closed up more than +1% after reporting Q2 revenue of $11.04 billion, stronger than the consensus of $10.88 billion. 

Earnings Reports (4/22/2025)

3M Co (MMM), Baker Hughes Co (BKR), Capital One Financial Corp (COF), Chubb Ltd (CB), Danaher Corp (DHR), Elevance Health Inc (ELV), Enphase Energy Inc (ENPH), EQT Corp (EQT), Equifax Inc (EFX), General Electric Co (GE), Genuine Parts Co (GPC), Halliburton Co (HAL), Intuitive Surgical Inc (ISRG), Invesco Ltd (IVZ), Kimberly-Clark Corp (KMB), Lockheed Martin Corp (LMT), Moody's Corp (MCO), MSCI Inc (MSCI), Northern Trust Corp (NTRS), Northrop Grumman Corp (NOC), NVR Inc (NVR), Packaging Corp of America (PKG), Pentair PLC (PNR), PulteGroup Inc (PHM), Quest Diagnostics Inc (DGX), RTX Corp (RTX), Steel Dynamics Inc (STLD), Synchrony Financial (SYF), Tesla Inc (TSLA), Verizon Communications Inc (VZ).