'Sell America' Trade: Wall Street Falters, Gold Shines As Trump-Fed Face-Off Worsens

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 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 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.

"To characterize the events as putting the Fed independence discussion into uncharted waters would be an understatement," Ian Lyngen, head of US rates strategy at BMO Capital Markets told news agency Bloomberg.

Earlier, the US government had made similar efforts by attempting to fire Fed Governor Lisa Cook and repeated demands for sharp interest rate cuts.

However, the last time the 'Sell America' trade was set in motion was when Trump had gone on a tariff rampage last year and imposed hefty levies on US trade partners across the globe.

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.

On a similar note, 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.

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 Fed subpoena is another example of how US assets are becoming less attractive," David Chao, global market strategist at Invesco Asset Management told Bloomberg.