Stocks Slip, Commodities Retreat, and Political Uncertainty Drives Safe-Haven Demand

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Index Update:  On Monday, the Dow fell 0.77%, the S&P 500 dropped 0.43%, and the Nasdaq slipped 0.22%, with nine of 11 S&P sectors lower, led by consumer staples, healthcare, and utilities. Losses followed profit-taking after Friday’s rally on Fed rate-cut signals, while Interactive Brokers rose 4% after being added to the S&P 500.

Market Movers:  On Monday, the top gainers were Inno Holdings Inc.(+262.60%), followed by Offerpad Solutions Inc (+136.36%). On the contrary DeFi Development Corp. (-22.37%), and CEA Industries Inc (-16.29%) declined the most the same day.

Commodities Update:  WTI crude fell to $64.1 per barrel and Brent to $68 after earlier three-week highs, as traders monitored the Russia-Ukraine conflict and potential supply disruptions from recent Ukrainian drone strikes on Russian energy facilities. Additional pressure came from concerns over a 25% US tariff on India for purchasing Russian oil, while expectations of a September Fed rate cut offered some demand support. Markets now await the API’s weekly crude stock data. Gold climbed to a two-week high near $3,370 per ounce amid political uncertainty after President Trump fired Fed Governor Lisa Cook, raising concerns about central bank independence. The move, combined with Powell’s signal of a possible September rate cut and heightened US-China trade tensions over rare-earth exports, fueled safe-haven demand as markets price an 83% chance of a 25bps cut.

Macro Updates:  Trump Warns of Tariffs Over Digital Taxes on U.S. Tech Firms

President Trump threatened tariffs and export restrictions on countries imposing digital taxes or regulations on U.S. tech companies, calling such measures discriminatory. In a Truth Social post, he warned of “substantial additional tariffs” and limits on technology exports, signaling strong protection for firms like Google and Meta despite domestic tensions with Big Tech.

Dollar Rebounds as Fed Independence Concerns Rise

The dollar index climbed above 98.5 on Tuesday after initially slipping, following President Trump’s removal of Fed Governor Lisa Cook over alleged mortgage fraud. The move raised worries about central bank independence and boosted expectations of a September rate cut, now seen as 83% likely, ahead of key economic data including the PCE price index.

Trump Fires Fed Governor Lisa Cook Over Alleged Mortgage Fraud

President Trump announced the dismissal of Fed Governor Lisa Cook, citing allegations of false statements on a 2021 mortgage application. Trump argued the actions violated the “for cause” removal standard, stating that her conduct undermined public trust in the Federal Reserve’s integrity.

Trump Threatens 200% Tariff on China Over Rare Earth Magnet Access

President Trump warned of a potential 200% tariff on Chinese goods if China refuses to supply rare earth magnets to the U.S., following Beijing’s tighter restrictions on rare earth mining. He argued the U.S. has trade leverage and could develop its own supply within a year, highlighting the strategic importance of these minerals for technology and defense.

Bonds Commentary:  The 10-year US Treasury yield rose to 4.3% on Tuesday ahead of key economic data, including the PCE price index later this week. Market volatility increased after President Trump removed Fed Governor Lisa Cook over alleged mortgage fraud, raising concerns about Fed independence and boosting expectations of a September rate cut, now seen as 83% likely.

Futures Update:  US stock futures declined Tuesday after a weak start to the week, as investors paused following last week’s strong rally. Focus shifted to Nvidia’s earnings on Wednesday and the Fed’s key inflation gauge due Friday.

Following a sharp rise last Friday, stock markets retraced most of their gains throughout the trading day on Monday. The S&P 500 declined by 27.61 points, or 0.43%, closing at 6,439.31. From a technical standpoint, the index found support at the 21-period simple moving average and continues to hold above this level. We also noted in yesterday’s commentary that a period of consolidation was likely in the near term, which remains a likely scenario. Additionally, the 14-day RSI reversed from the midpoint, indicating a possible positive bias. Key support levels are around 6,366, with resistance expected near 6,555.