Stock Market Remains Steady Despite Trump's Political Turmoil

• Initial market panic subsided as vocal support from leading economists worldwide and Republican opposition in Congress reassured investors the investigation would not escalate further
• While stocks recovered, other assets showed investor concern: the U.S. dollar weakened, gold and silver hit new highs, and U.S. stocks underperformed international markets
• The VIX volatility index jumped but remained within its recent range, indicating investors were not significantly worried and quickly shifted focus to Q4 earnings season and inflation data

Summary

Market Performance:

The S&P 500 recovered from early losses to close at all-time highs on Monday, despite a criminal investigation into Federal Reserve Chair Jerome Powell. The Dow Jones initially dropped nearly 500 points but major indices—including the S&P 500 and Russell 2000—cut losses to finish positive by day's end.

Key Issue:

President Trump launched an investigation into Fed Chair Powell, raising investor concerns about potential threats to the central bank's independence in setting interest rates. This sparked initial market volatility as traders assessed whether this represented a short-term political flare-up or a long-term institutional threat.

Market Reaction:

While stocks ultimately shrugged off the news, other asset classes showed investor concern. The U.S. dollar declined against peers, while safe-haven assets gold and silver climbed to new highs. The VIX (volatility index) jumped but remained within its recent trading range. U.S. stocks underperformed international markets this week.

Stabilizing Factors:

• Global economists voiced strong support for Powell
• Republican opposition to the investigation emerged, with Sen. Thom Tillis (R-N.C.) threatening to block Trump's Fed nominees
• Market participants viewed the situation as a temporary tension rather than a fundamental shift in Fed independence

Expert Perspective:

Former Fed Chair Janet Yellen expressed surprise at the market's muted concern. Siebert Financial CIO Mark Malek suggested investors expect the controversy to pass, particularly as focus shifts to Q4 earnings season and inflation data.

The episode highlighted market resilience amid political uncertainty, though conventional wisdom typically predicts near-term stock declines during political turmoil.