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Stocks opened lower Monday as news that the Department of Justice is investigating Federal Reserve Chair Jerome Powell shook market sentiment. However, the main equity indexes found their footing by lunchtime as participants turned their attention to this week’s key inflation data and the start of fourth-quarter earnings season.
Late Friday, the Fed was issued subpoenas that threaten criminal indictment for Chair Powell over his testimony to the Senate Banking Committee last summer regarding renovations to the central bank’s buildings.
In what is being called an “extraordinary” step, Powell released a video statement on Sunday night that calls the move “an unprecedented action” – one whose outcome threatens the independence and integrity of the Federal Reserve.
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“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation,” Powell said.
Mark Malek, chief investment officer at Siebert Financial, is hoping the subpoenas and threat of criminal investigation are not a ploy to manipulate Powell & Co.
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“The Fed must remain independent in order for the central bank to remain effective and – and this is important – for the integrity of the U.S. Dollar and the all-important Treasury markets to remain the world’s benchmarks. Full stop.”
AXP sheds $11 billion in market value on Trump’s rate-cap plan
Market participants eventually brushed off Fed concerns. The yield on the 2-year Treasury note edged up 0.1 basis point to 3.541% and the yield on the 10-year Treasury was 1.8 basis points higher at 4.189%.
As for stocks, the S&P 500 rose 0.2% to 6,977 and the Dow Jones Industrial Average gained 0.2% to 49,590 – new record closing highs. The Nasdaq Composite added 0.3% to 23,733.
Financial stocks created the biggest headwind to the blue-chip index after President Donald Trump on Friday proposed a one-year 10% cap on interest rates that credit card companies charge customers.
American Express (AXP) was the worst-performing Dow Jones stock today, shedding 4.3% – or $11 billion in market value – on Trump’s rate-cap plan. But UBS Global Research analyst Erika Najarian believes the freeze is “unlikely to be implemented.”
For one, Najarian says, such a move would require an act of Congress. She also notes that rate caps were not included in last summer’s GENIUS Act, even though they were reportedly under consideration, “suggesting that the industry lobby made an impact.
JPMorgan sinks ahead of earnings
JPMorgan Chase (JPM) was another sinking financial stock, shedding 1.4% on Trump’s rate-cap proposal. The country’s biggest bank by assets will disclose its quarterly results ahead of Tuesday’s open, unofficially marking the start of Q4 earnings season.
BofA Securities analyst Ebrahim Poonawala recently raised his Q4 earnings-per-share estimate for JPM to $4.97 from $4.87, explaining that weaker banking revenue for the three-month period will be more than offset by strong trading.
Poonawala has a Buy rating and $362 price target on the blue chip stock, representing implied upside of almost 12% to current levels.
Abercrombie & Fitch plunges nearly 18% on weak guidance
Abercrombie & Fitch (ANF) plummeted 17.7% on Monday after the apparel retailer updated its guidance for the holiday quarter and full fiscal year.
The company now expects fourth-quarter sales growth of “around 5%” and earnings per share of $3.50 to $3.60. This compares to its previous outlook for Q4 sales growth of 4% to 6% and EPS of $3.40 to $3.70.
ANF also narrowed its full-year forecast, anticipating sales growth of “at least 6%” and earnings per share of $10.30 to $10.40. Its prior guidance called for sales “growth in the range of 6% to 7%” and EPS of $10.2 to $10.50.
Today’s selloff marks a change of pace for the retail stock. Heading into Monday’s session, ANF was up nearly 80% since late November.