In a surprising turn of events, US government bonds and the dollar have experienced a notable decline, joining a broader retreat across US market indexes.
This shift is atypical, as Treasurys and the dollar typically strengthen in times of market instability, underscoring the direct impact of Washington’s policies on investor sentiment.
President Trump has intensified his tough stance on global trade, compelling economists and investors to voice concerns that his proposed tariffs could potentially trigger a recession if not revoked.
Recent trade discussions between the US and Japan fell short of securing a timely agreement to ease tariffs, which many view as a critical testing ground for future negotiations.
“The golden rule of negotiating and success: He who has the gold makes the rules,” Trump declared in uppercase letters on his Truth Social Network.
He also criticized business leaders opposing tariffs, stating they are “bad at business, but really bad at politics,” also in all caps.
Trump’s focus has shifted increasingly toward China, which has ramped up its rhetoric in response.
On Monday, China’s Commerce Ministry issued a warning to other nations against striking trade deals with the US that might compromise Chinese interests.
The ministry stated, “If this happens, China will never accept it and will resolutely take countermeasures in a reciprocal manner.”
Adding to market concerns are Trump’s dissatisfaction with Federal Reserve Chair Jerome Powell.
Last week, Trump publicly criticized Powell, accusing him of delaying necessary interest rate cuts to provide the economy with a boost.
The Federal Reserve has shown hesitance to reduce rates too swiftly, as it aims to maintain inflation after it has decreased significantly from over 9 percent three years ago to near the 2 percent target.
Trump remarked on Monday regarding a potential slowdown in the US economy, urging “Mr. Too Late, a major loser, lowers interest rates, NOW.”
The prospect of Trump dismissing Powell raises alarm among investors, as it could induce fear within financial markets.
While Wall Street generally favors lower rates for their capacity to elevate stock prices, a less independent Fed could struggle to contain inflation effectively.
Such developments could undermine the United States’ longstanding reputation as a secure haven for cash investments.
The prevailing uncertainty within the financial markets is prompting some investors to reconsider their investment strategies.
“We can no longer extrapolate from past trends or rely on long-term assumptions to anchor portfolios,” analysts at BlackRock Investment Institute stated in a report.
They emphasized the need to persistently reassess long-term trajectories and remain agile in asset allocation given the dynamic global context.
This shift could lead international investors to favor holding more capital within their own domestic markets instead of the US.
On Wall Street, major technology stocks contributed to the downward trend amidst anticipation of forthcoming earnings reports.
Tesla saw a significant drop of 5.7 percent, continuing a downward trend since reaching an all-time high in December, attributed partly to criticism over its elevated stock price.
Concerns also arose regarding CEO Elon Musk’s involvement in US fiscal policy management, which some believe is adversely affecting the company’s image.
Nvidia dropped 4.5 percent for the third consecutive session after revealing that US export restrictions on chips to China might adversely affect its quarter results by approximately $5.5 billion.
These movements led to a broader decline on Wall Street, with 92 percent of S&P 500 stocks experiencing losses.
However, amidst the downturn, Discover Financial Services and Capital One Financial emerged as gainers on news that the US government approved their merger proposal.
Discover rose 3.6 percent, while Capital One added 1.5 percent.
In total, the S&P 500 fell by 124.50 points, landing at 5,158.20.
The Dow Jones Industrial Average experienced a 971.82 point drop, settling at 38,170.41, and the Nasdaq composite fell by 415.55 points to finish at 15,870.90.
Gold prices, in contrast, increased, reinforcing its status as a safe-haven investment amid the volatility.
In the bond market, shorter-term Treasury yields decreased as market participants anticipate a rate cut from the Fed as early as this year.
However, longer-term yields rose amid growing skepticism about the United States’ economic position on the global stage.
The yield on a 10-year Treasury note increased to 4.40 percent, up from 4.34 percent at the end of the previous week and significantly higher than the nearly 4 percent level earlier this month.
This represents a significant shift for the bond market.
The US dollar also depreciated against the euro, Japanese yen, Swiss franc, and other major currencies.
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