Here we go again. Stocks are selling off, long-term Treasury yields are rising, the US dollar is dropping, and gold is surging. Crude oil is slipping.
What’s driving another round of “Sell the US” trading? President Trump has made it clear he doesn’t approve of the choices Federal Reserve Chair Jay Powell is making. He wants Powell to cut rates NOW rather than wait – and he’s so unhappy, he’s reportedly deciding whether to attempt to fire him.
Gold, US Dollar, S&P 500, Long Bond Futures
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It’s unclear if such a move is legal, however, given the statutes that govern the Fed. The Supreme Court might ultimately have to rule on that. In the meantime, even TALK of putting monetary policy under the direct control of the executive branch is violating decades of protocol under both Republican and Democratic administrations.
That, in turn, could make global investors boost the risk premium associated with US assets and the threat of longer-term US inflation. And THAT is why the dollar keeps tanking, gold keeps rising, long-term yields are climbing again, and stock market volatility remains elevated.
Meanwhile, Q1 earnings season shifts into high gear this week. High-profile companies like Tesla Inc. (TSLA) and Alphabet Inc. (GOOGL) are reporting their latest numbers Tuesday and Thursday. We’ll also get reports from drug giants Merck & Co. (MRK) and Novartis AG (NVS), computing and consulting behemoth International Business Machines Corp. (IBM), and railroad bellwether Union Pacific Corp. (UNP).
Only about 12% of S&P 500 companies have reported Q1 results so far. The average growth rate thus far is 7.2% year-over-year. Analysts expect YOY growth from seven of 11 S&P 500 sectors, with healthcare looking the strongest. Groups like energy, materials, and consumer staples are forecast to show the worst YOY declines in profit.
