Why the stock market keeps shrugging as Trump sows more political chaos

Stock investors largely shrugged off the criminal investigation of Federal Reserve Chair Jerome Powell — the latest example of the market looking past political risk.

The Dow Jones Industrial Average initially tumbled nearly 500 points on Monday. Investors worried the probe represented a broader push by President Donald Trump to strip away the central bank’s autonomy in setting interest rates.

But as the session went on, the blue-chip index — along with the broad S&P 500 and small cap-focused Russell 2000 — were able to cut losses and the end the day at all-time highs.

The turnaround bucked conventional market wisdom, which suggests that political turmoil can drive down stocks in the near-term as traders hedge bets. Some market participants wondered if Powell’s announcement of the investigation would resurface the “Sell America” trade, which places a higher risk premium on U.S. assets.

But the vocal support of Powell from leading economists around the globe, paired with clear opposition from some Republicans in D.C., may have made investors feel assured that this was a passing flare-up of tensions rather than a tide-changing moment for the Fed’s independence.

Economists reiterated Powell’s framing that the investigation was less about the central bank’s renovation and more about interest rates not coming down as fast as Wall Street hopes. Former Fed Chair Janet Yellen said she was “surprised the market isn’t more concerned.”

Republican opposition to the investigation became increasingly clear over the course of Monday, which could give traders security that the tiff would not escalate much further. Sen. Thom Tillis, R-N.C., said he would block any of Trump’s nominees to the central bank after the investigation was made public.

While stocks bucked expectations for a decline, other asset classes showed evidence that investors were taking note of the investigation. The U.S. dollar slid against peers, while safe-haven metals gold and silver climbed to new highs. U.S. stocks didn’t see as much upside as international counterparts and are underperforming a global basket this week.

The CBOE Volatility Index (VIX) — known as Wall Street’s fear gauge — jumped on Monday. But it didn’t break out of its recent trading range, which signals to investors like Siebert Financial CIO Mark Malek that investors weren’t too worried yet.

“Investors expect all this to blow over, or that they simply don’t want to focus on this as we enter Q4 earnings season,” Malek said.

Indeed, by Tuesday, investors shifted focus to the latest inflation data and corporate earnings reports.

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