U.S. Markets Decline Amid Speculation on Federal Reserve Leadership

The S&P 500 Index ($SPX) (SPY) is down -2.36%, while the Dow Jones Industrials Index ($DOWI) (DIA) has fallen -2.32%. Additionally, the Nasdaq 100 Index ($IUXX) (QQQ) is down -2.52%. June E-mini S&P futures (ESM25) are down -2.37%, and June E-mini Nasdaq futures (NQM25) are down -2.51% today.

Market Decline Triggered by Fed Uncertainty

Today’s sell-off has driven the S&P 500 to a one-week low, with both the Dow and Nasdaq hitting one-and-a-half-week lows. The retreat in stocks coincides with rising concerns over the Federal Reserve’s independence, as President Trump considers the potential firing of Fed Chair Powell. Selling pressure intensified following comments from National Economic Council Director Hassett indicating the President’s discontent with Powell’s interest rate decisions. Meanwhile, the dollar has tumbled to a three-year low, while gold has soared to a new record high. The increased uncertainty surrounding Powell’s position may lead foreign investors to offload dollar-denominated assets, including stocks and Treasuries.

Bitcoin (^BTCUSD) has seen a significant rise of over +4%, reaching a three-and-a-half-week high. This shift is largely attributed to the dollar’s decline, which has increased demand for cryptocurrencies amid fears regarding the Fed’s independence and the overall weakening of the dollar.

Market Expectations and Economic Indicators

The financial markets are currently pricing in only a 14% likelihood of a 25 basis point rate cut following the upcoming May 6-7 FOMC meeting. This week, traders are focused on Q1 corporate earnings and changes in U.S. trade policy. On Wednesday, new home sales for March are projected to increase by +0.7% month-over-month to reach 681,000 units. The Fed Beige Book will also be released that day. Thursday’s economic data will include new orders for capital goods excluding defense aircraft (forecasted to rise +0.1% month-over-month) and existing home sales, which are anticipated to drop -2.8% month-over-month to 4.14 million. Finally, Friday’s agenda includes the revised University of Michigan consumer sentiment index for April, expected to remain unchanged at 50.8.

Q1 Earnings Season Overview

The Q1 earnings reporting season is underway. According to Bloomberg Intelligence, the consensus for year-over-year S&P 500 earnings growth stands at +6.7%, a reduction from the +11.1% projection made in early November. Expectations for full-year 2025 corporate profits have also declined, now estimated to rise by +9.4%, down from earlier forecasts of +12.5%.

International Market Developments

Global stock markets displayed mixed results today, with the Euro Stoxx 50 closed due to the Easter Monday holiday. In Asia, the Shanghai Composite Index in China climbed to a two-week high, finishing up +0.45%, while Japan’s Nikkei 225 declined, shedding -1.30%.

In recent tariff discussions, President Trump offered a temporary exemption for consumer electronics from reciprocal tariffs and the baseline 10% global tariff imposed on April 4. Nevertheless, a 20% tariff still applies to electronics imported from China. The President also announced a 90-day suspension on heightened reciprocal tariffs affecting 56 nations, maintaining the new 10% baseline tariff across the board. The European Union responded by postponing the implementation of 25% tariffs on $21 billion worth of U.S. goods for 90 days.

On March 4, Trump initiated a 25% tariff on goods from Canada and Mexico while raising tariffs on Chinese goods from 10% to 20%. Following that, on April 2, he signed a proclamation for a 25% tariff on U.S. auto imports, targeting vehicles assembled outside the country. This will extend to include auto parts by May 3. A broad 10% tariff for nearly all nations commenced on April 5.

In retaliation, China raised tariffs on all U.S. goods to 125% from 84%, further escalating tensions after its restriction on Boeing jet deliveries last Tuesday and the U.S. blocking Nvidia’s chip sales to China on Wednesday.

Interest Rate Movements and Treasury Market Impact

June 10-year T-notes (ZNM25) are down -3 ticks today, with the yield on the 10-year T-note rising by +2.9 basis points to 4.354%. These T-notes are under pressure owing to possible actions by Trump regarding Powell’s position, which threatens the Fed’s credibility and investor confidence in the dollar. Additionally, supply pressures from a $213 billion Treasury auction this week, beginning with $69 billion of 2-year T-notes on Tuesday, are contributing to bearish sentiment in the T-note market. However, safe-haven buying spurred by today’s stock market slump has provided some support to Treasuries.

European bond markets are inactive today due to the Easter Monday holiday. Last Thursday, the yield on the 10-year German bund fell to 2.472%, while the 10-year UK gilt yield decreased to 4.566%.

ECB Governing Council member Muller cautioned that U.S. tariffs and increased public expenditure in Germany could lead to inflationary pressures. Swaps are currently indicating a 92% probability of a 25 basis point rate cut by the ECB at its policy meeting on June 5.

Key U.S. Stock Movers

The “Magnificent Seven” stocks face downward pressure today, adversely impacting the overall market. Tesla (TSLA) has decreased by over -7%, while Nvidia (NVDA) is also down more than -5%. Amazon.com (AMZN) and Meta Platforms (META) are down more than -3%. Other tech giants including Apple (AAPL), Alphabet (GOOGL), and Microsoft (MSFT) are retreating as well, each dropping more than -2%.

Chip stocks are also taking a hit. Marvell Technology is down over -5%, with Broadcom (AVGO), ASML Holding NV (ASML), and KLA Corp (KLAC) declining by more than -3%. Other semiconductor firms such as Advanced Micro Devices (AMD), ON Semiconductor (ON), Lam Research (LRCX), Intel (INTC), Applied Materials (AMAT), Micron Technology (MU), and GlobalFoundries (GFS) have each recorded drops of more than -2%.

In the energy sector, a decline in WTI crude prices of more than -2% has adversely impacted producers. APA Corp (APA) fell more than -5%, while Diamondback Energy (FANG) is slightly up by +3%. Other energy firms like Devon Energy (DVN), Occidental Petroleum (OXY), Halliburton (HAL), Conoco Phillips (COP), Marathon Petroleum (MPC), Phillips 66 (PSX), Valero Energy (VLO), Chevron (CVX), Baker Hughes (BKR), and Schlumberger (SLB) are down over -2% as well.

Health insurance stocks are continuing to decline for the second consecutive session following UnitedHealth Group’s announcement of a reduced full-year earnings outlook last Thursday. United Health Services is among the companies feeling the impact.