President Trump’s escalating rhetoric against Federal Reserve Chairman Jerome Powell has kicked the week by shaking financial markets and sparked a broader debate about the role of “safe shelter” assets in the face of global and economic uncertainty.
Risk-off investments such as the US dollar and long-term bonds, which are usually considered historic hedges on volatility, were aggressively sold on Monday, coinciding with a sharp decline in the stock market. The 10-year yield (^TNX) has skyrocketed above 4.4%, but since 2022 the dollar (DX-Y.NYB) has fallen to its lowest level.
There was a bit of a grace period for early trading on Tuesday, but not much. The 10-year yield continued to trade at around 4.4%, but the US Dollar Index also fell below the 100 level, a key psychological and technical milestone.
That’s an unusual development. Instead of flocking to safe shelters like bonds and US currencies, investors appear to be pulling back.
Investors accelerated emotional change with strong movements towards products such as gold (GC = F) and speculative positions such as Bitcoin (BTC-USD). Gold gathered on yet another record on Tuesday, with Bitcoin trading nearly $91,000 for the first time since February.
The fear of political interference in monetary policy appeared to have sparked a sharp sale on Monday, but the exact catalyst remains unknown as investors continue to respond to the US economy, where pressure from tariffs, slow growth and is exposed to escalating geopolitical tensions.
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“This isn’t a good place from a narrative standpoint,” Ann Berry, founder of Threadneedle Ventures, told Yahoo Finance on Monday. “No one is betting on America, but no one says, ‘Oh, we should be there right now.’
According to JPMorgan, US stock ETFs have net flow of $3.6 billion to $3.6 billion. This is a noticeable change considering how the US market relies on foreign capital.
Callie Cox, chief market strategist at Ritholtz Wealth Management, said in a client memo on Monday that foreign investors own US government debt in almost a third and a quarter of US stocks. They were also net buyers at 70% of the months in the past decade.
“Wall Street is the American secret weapon of America’s global domination,” Cox said. “Why? Because there are innovative companies, strong institutions, stable rule of law. All of these factors have been questioned recently.”
