US Stocks Whipsaw As Trump Denies Plan To Fire Powell: Markets Wrap

Speculation about the fate of Federal Reserve Chair Jerome Powell set off a short-lived tempest in financial markets Wednesday, with volatility mostly quelled after President Donald Trump said he has no plans to fire the central bank chief and was only discussing it in “concept.”

Stocks bounced from session lows, with the S&P 500 trading little changed. Two-year yields, which are more sensitive to imminent Fed moves, dropped four basis points to 3.90%. The dollar halted a four-day advance.

Trump said he is “not planning on doing anything” to remove Powell, after a White House official said the president was likely to seek the Fed Chair’s ouster soon. The president later added, when asked if he was completely ruling out the idea of firing Powell, that “it’s highly unlikely, unless he has to leave.”

Firing Powell would test the legal bounds of Trump’s authority and has the potential to roil markets, though its ultimate impact isn’t certain. While impinging central bank authority risks politicizing decisions about how to handle inflation and economic growth, the likelihood of a more dovish successor may be welcome in risky assets like stocks. 

Bloomberg News reported Wednesday that Kevin Hassett is the early frontrunner. The long-time Trump economic aide has often echoed the president’s critique of Powell.

To Chris Zaccarelli at Northlight Asset Management, a decision to fire the Fed chief would negatively impact markets as concerns around central bank independence would be at “the forefront of investors’ minds.”

“Keep in mind the decision to fire Powell would have to make its way through the courts because he can only be fired for “cause” and they have to determine if the cost overruns on the new Fed building are grounds for that,” he said.

“And now that Trump says he’s ‘not Planning’ to fire Powell we have to wonder if the first story was a trial balloon to see how markets would react,” said Steve Sosnick at Interactive Brokers.

At Academy Securities, Peter Tchir said that he’s been arguing that Trump has been emboldened after a series of “wins” - which might encourage him on this.

“But possibly more importantly, would be a sign that tariff policy is going to be more aggressive than market current thinks,” Tchir added.

Earlier gains in stocks were driven by a softer-than-estimated inflation reading that reinforced the case for the Fed to cut rates this year. A slide in chipmakers fueled by a weak outlook from ASML Holding NV also weighed on sentiment. Revenue surprises from US financial giants like Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley were unable to boost the shares.

US wholesale inflation moderated in June as a sharp decline in the costs of travel-related services offset a pickup in goods prices. The producer price index was unchanged from a month earlier, after an upwardly revised 0.3% gain in May. US wholesale prices rose 2.3% from a year earlier, the least since September.

“Disinflation remains, but the Fed will be undeterred in keeping rates steady until September,” said Jamie Cox at Harris Financial Group. “As long as the labor market remains strong and resilient, rates aren’t likely to move meaningfully lower, and that’s a good thing.”

Investors may underestimate the potential for further gains in stocks and other risk assets but they should hedge against the threat of a weaker dollar, higher bond yields and greater volatility, according to KKR & Co. 

Loosening financial conditions, policy easing by global central banks, improving productivity and a lack of net issuance provide a supportive backdrop for risk investments, said Henry McVey, head of global macro and asset allocation at the alternative asset manager.

• ASML Holding NV Chief Executive Officer Christophe Fouquet walked back his forecast that sales will grow next year, blaming trade disputes and global tensions.

• Tesla Inc. is preparing to launch a longer, six-seat version of its Model Y sport utility vehicle in China, where the carmaker has been losing ground to domestic manufacturers with fresher lineups.

• Nvidia Corp. boss Jensen Huang anticipates getting the first batch of US licenses to export H20 AI chips to China soon, formally allowing the company to resume sales of a much sought-after component to the world’s top semiconductor arena.

• Goldman Sachs Group Inc.’s stock traders posted the largest revenue haul in Wall Street history, as volatility sparked by the Trump administration’s trade war spurred a second straight record quarter for the unit.

• Morgan Stanley’s stock traders posted their best second quarter on record as the biggest US banks continue to reap the benefits of market volatility tied to President Donald Trump’s policy moves.

• Bank of America Corp.’s traders posted a record second quarter as the company reaped the benefits of volatile markets and net interest income topped analysts’ estimates.

• Johnson & Johnson beat Wall Street’s quarterly sales expectations and raised its full-year outlook, a show of confidence as the pharmaceutical industry faces the dual threats of tariffs and a crackdown on drug pricing.

• Hewlett Packard Enterprise Co. announced several business changes, including the formation of a new strategy committee and the appointment of a new board member, as it agreed to work with Elliott Investment Management on ways to help the software company boost value.

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 12:04 p.m. New York time

• The Nasdaq 100 fell 0.3%

• The Dow Jones Industrial Average was little changed

• The Stoxx Europe 600 fell 0.6%

• The MSCI World Index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.2% to $1.1628

• The British pound rose 0.3% to $1.3423

• The Japanese yen rose 0.5% to 148.21 per dollar

Cryptocurrencies

• Bitcoin rose 2.1% to $118,876.59

• Ether rose 6.5% to $3,239.4

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.47%

• Germany’s 10-year yield declined two basis points to 2.69%

• Britain’s 10-year yield advanced one basis point to 4.64%

• The yield on 2-year Treasuries declined four basis points to 3.90%

Commodities

• West Texas Intermediate crude fell 0.9% to $65.90 a barrel

• Spot gold rose 0.5% to $3,341.83 an ounce