Wall Street weakened overnight as investors worldwide get more skeptical about US investments because of President Donald Trump‘s trade war and his criticism of the US Federal Reserve, which are shaking the traditional order.
The S&P 500 sank 2.4 per cent in another wipeout on Monday. That yanked the index that’s at the centre of many accounts 16 per cent below its record set two months ago.
The Dow Jones Industrial Average dropped 971 points, or 2.5 per cent, while losses for Tesla and Nvidia helped drag the Nasdaq composite down 2.6 per cent.
LIVE UPDATES: Pope Francis dies aged 88
Perhaps more worryingly, US government bonds and the value of the American dollar also sank as prices retreated across US markets.
It’s an unusual move because Treasury bonds and the dollar have historically strengthened during episodes of nervousness.
This time around, though, it’s policies directly from Washington that are causing the fear and potentially weakening their reputations as some of the world’s safest investments.
Trump continued his tough talk on global trade as economists and investors continue to say his stiff proposed tariffs could cause a recession if they’re not rolled back.
US talks last week with Japan failed to reach a quick deal that could lower tariffs and protect the economy, and they’re seen as a “test case,” according to Thierry Wizman, a strategist at Macquarie.
“The golden rule of negotiating and success: He who has the gold makes the rules,” Trump said in all capitalised letters on his Truth Social Network.
He also said that “the businessmen who criticise tariffs are bad at business, but really bad at politics,” likewise in all caps.
READ MORE: How is a new pope elected? Inside the Vatican’s centuries-old secret process
Also hanging over the market are worries about Trump’s anger at Federal Reserve chair Jerome Powell.
Trump last week criticised Powell again for not cutting interest rates sooner to give the economy more juice.
The central bank has been resistant to lowering rates too quickly because it does not want to allow inflation to reaccelerate after slowing nearly all the way down to its two per cent goal from more than nine per cent three years ago.
Trump talked on Monday about a slowdown for the US economy that could be coming unless “Mr. Too Late, a major loser, lowers interest rates, NOW.”
A move by Trump to fire Powell would likely send a bolt of fear through financial markets. While Wall Street loves lower rates, largely because they boost stock prices, the bigger worry would be that a less independent Fed would be less effective at keeping inflation under control.
Such a move could further weaken, if not kill, the US’ reputation as the world’s safest place to keep cash.
All the uncertainty striking pillars at the centre of financial markets means some investors say they’re having to rethink the fundamentals of how to invest.
READ MORE: Police try to identify man in decade-old armed robbery CCTV
“We can no longer extrapolate from past trends or rely on long-term assumptions to anchor portfolios,” strategists at BlackRock Investment Institute said in a report.
“The distinction between tactical and strategic asset allocation is blurred. Instead, we need to constantly reassess the long-term trajectory and be dynamic with asset allocation as we learn more about the future state of the global system.”
On Wall Street, technology stocks helped lead indexes lower ahead of their latest earnings reports due later this week.
All told, the S&P 500 fell 124.50 points to 5158.20. The Dow Jones Industrial Average dropped 971.82 to 38,170.41, and the Nasdaq composite tumbled 415.55 to 15,870.90.
Gold also climbed to burnish its reputation as a safe-haven investment, unlike some others.
In the bond market, shorter-term US Treasury yields fell as investors expect the Fed to cut its main overnight interest rate later this year to support the economy.
The US dollar’s value, meanwhile, fell against the euro, Japanese yen, the Swiss franc and other currencies.
