US stock indices sold off on Monday as investors positioned themselves ahead of Nvidia’s earnings report due Wednesday, and as they considered President Trump’s continued interference at the Federal Reserve. The Dow fell 0.8%, while the S&P 500 and Nasdaq lost 0.4% and 0.2% respectively.
Source: TN Trader
All gave back a large chunk of the gains made on Friday afternoon following a key speech from Fed Chair Jerome Powell. Speaking at the Jackson Hole Economic Symposium, Mr Powell suggested that the central bank was ready to loosen monetary policy. This was interpreted by the markets as a green light for rate cuts, starting with 25 basis points at next month’s monetary policy meeting.
The probability of a September cut stood at 71% prior to Mr Powell’s speech but then shot up to 91%, before pulling back to 84%, according to the CME’s FedWatch Tool. On the rates side, the 10-year US Treasury yield edged up to 4.30% this morning, as markets reassessed the impact of Powell’s dovish Jackson Hole remarks against the backdrop of political uncertainty.
But since Friday’s close, US stock indices have headed lower. There has been a sharp increase in political uncertainty after President Trump threatened a 200% tariff on China if rare earth exports are restricted. In addition, Mr Trump has ‘fired’ Federal Reserve Governor Lisa Cook, following allegations of mortgage fraud. Investors are becoming increasingly concerned by the President’s persistent interference in the business of the central bank.
Mr Trump has launched a series of personal attacks on Fed Chair Powell and has been calling for the US central bank to slash the Fed Funds rate to 1% from their current level of 4.25-4.50%. The President is also in the process of loading the roster of Fed governors with his own appointees.
US stock index futures extended their losses in early trade on Tuesday, following Monday’s selloff. Nvidia’s earnings report after Wednesday’s close is without doubt the biggest event of the week. It is worth noting that the generative AI chipmaker now accounts for 8% of the S& 500 by market capitalisation.
There has never been a single company that has that amount of influence on the index before. As far as data is concerned, there’s the weekly Unemployment Claims number on Thursday, followed by Core PCE (the Fed’s preferred inflation measure) on Friday.
The VIX fell sharply at the end of last week following Jerome Powell’s more dovish-than-expected speech at Jackson Hole. But it has picked up a touch so far this week as investors adopt a wait-and-see approach ahead of Nvidia earnings after tomorrow’s close.
