While the S&P 500 erased its decline and hit a record, unease over interference in monetary policy kept a lid on the market. Capital One Financial Corporation, American Express and JPMorgan Chase sank as President Donald Trump called on credit card companies to cap rates at 10 per cent for a year.
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On Monday, the S&P 500 edged up to around 6980 points. The KBW Bank Index lost 1.4 per cent. Most megacaps rose. Alphabet Inc.’s Google confirmed that it has entered a multi-year deal with Apple Inc to power the iPhone maker’s artificial intelligence technology.
Longer-dated Treasuries underperformed while the US dollar fell against most of its major peers.
The Fed’s perceived independence from government whims is a bedrock assumption of markets, and any change to that perception could weigh on sentiment. While independence risks will likely be a key theme in 2026, Evercore senior managing director Krishna Guha said there were two ways to interpret US markets stabilising.
“The first is this does not matter to markets,” he said. “The second is it matters a lot, but partly for this reason investors think this move is going nowhere and the administration will look for a de-escalation off ramp. We are firmly in the second camp.”
The defining feature of this market is how little investors seem to care about an increasingly noisy backdrop including geopolitics, policy risk and macro uncertainty, according to Nationwide strategist Mark Hackett.
Fed Reserve chairman Jerome Powell.Credit: AP
Reflexivity president Giuseppe Sette said: “The bull market still has legs, and it’s entirely possible that we see further gains irrespective of what happens with internal and external policy.”
The yield on 10-year Treasuries advanced two basis points to 4.18 per cent. A dollar gauge slid 0.2 per cent.
Federal Reserve chair Jerome Powell said the central bank had been served grand jury subpoenas from the Justice Department threatening a criminal indictment. In a forceful written and video statement released on Sunday, Powell said the action was related to his June congressional testimony on ongoing renovations of the Fed’s headquarters.
In an interview with NBC News on Sunday, Trump denied having any knowledge of the investigation into the central bank.
The strength of the evidence in favour of greater central bank autonomy lowering inflation has often been overstated, and even complete independence offers no guarantee of low inflation in future, according to Jennifer McKeown at Capital Economics.
“But sustained political intrusion into monetary policy would come at a cost, even if markets are willing to overlook it in the short term,” she said.
The Trump administration’s latest attack on the Fed’s independence poses a threat to the US stock market, at least in the short term, according to JPMorgan Securities’ trading desk.
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“While macro and corporate fundamentals support a tactically bullish stance the risk to Fed independence creates an overhang, and thus we are cautious in the very near-term,” said Andrew Tyler, head of global market intelligence. “The risk around Fed independence is likely to push the US toward near-term underperformance.”
For now, the price action in bonds is consistent with Fed credibility concerns, with the yield curve steepening. That being said, the moves were within the prevailing range, according to BMO Capital Markets managing director Ian Lyngen.
Chris Larkin at E*Trade from Morgan Stanley said: “After shrugging off last week’s geopolitical surprises, US markets face domestic political headlines as trading kicks off this week. Barring additional surprises, the markets will likely turn their attention to earnings and inflation data.”
With Bloomberg
