Wall Street Opens on a Jittery Note
The Wall Street opened on a jittery note on Monday after news of a criminal probe into Federal Reserve Chair Jerome Powell broke on Sunday evening. Experts fear that the US government’s move has given investors cold feet about the American economy as a whole.
When the independence of an autonomous body such as the Federal Reserve comes under cloud, markets too feel threatened themselves. Consequently, investors lose faith in how the economy is being run and engage in tenacious offloading of US stocks, US government bonds, and the US dollar all at the same time. This is described as the ‘Sell America’ trade.
The ‘Sell America’ Trade: A Sign of Investor Distrust
The mass selling is an indication of investors having a rethink over parking their investments in the US market, say analysts. On Sunday evening, Powell was served subpoenas by the US Justice Department regarding his congressional testimony on ongoing renovations of the Fed’s headquarters, a project amounting to $2.5 billion.
The Fed chair has described the move as an escalation in the Donald Trump administration’s threats and ongoing pressure to influence the central bank. He has been at loggerheads with Trump over the past year, as the Fed has restricted the pace of rate reduction despite the President calling for accelerated cuts.
Impact on US Stock Market Indices
On Monday, all the main US stock market indices opened in the red, with Dow Jones Industrial Average falling as much as 400 points in the early minutes of trade. Shortly after the opening bell, Dow Jones hit a low of 49,011.31, down 492.76 points or 1% as against the previous day’s close.
The wider index, S&P 500, was down 32.21 points or 0.47% at 6,934.07, whereas the tech-heavy Nasdaq Composite slipped 108.37 points or 0.46% to 23,562.97 at open. While S&P 500 and Nasdaq pared losses later in the day and traded higher, Dow Jones remained in the red, trading 0.18% lower at 49,416.36 as of 12:32 p.m. EST.
Gold Shines as Safe-Haven Asset
In stark contrast to this, gold peaked to an all-time high $4,600 an ounce on Monday as investors found themselves swaying towards safe haven assets in times of uncertainty. The US dollar weakened against global currencies and treasuries slipped. As of 12:42 p.m. EST, the US spot dollar traded 0.24% lower.
"We remain skewed toward higher yields in the near-term", added Lyngen from BMO Capital Markets. "The Fed subpoena is another example of how US assets are becoming less attractive," David Chao, global market strategist at Invesco Asset Management told Bloomberg.
Implications for Indian Investors
As the ‘Sell America’ trade gains momentum, Indian investors must be cautious and keep a close eye on the developments in the US market. The ongoing face-off between the Trump administration and the Federal Reserve has sparked a wave of uncertainty, and investors must be prepared for any eventuality.
Indian investors can consider diversifying their portfolio by investing in Indian stocks or other emerging markets. They can also consider investing in safe haven assets like gold or other precious metals to hedge against any potential losses.
It is essential for Indian investors to stay informed and up-to-date with the latest developments in the US market and the global economy. They can follow reputable news sources and consult with financial experts to make informed investment decisions.
