Early on Tuesday, U.S. stock futures faced a downturn, continuing the downward trend of major averages that began the week. This decline followed President Donald Trump's decision to remove Federal Reserve Governor Lisa Cook from the central bank's board. Specifically, futures for the Dow Jones Industrial Average dropped by 64 points, or 0.14%. Meanwhile, S&P 500 futures and Nasdaq 100 futures also saw declines of 0.14% and 0.22%, respectively.
In a swift move overnight, the ICE U.S. Dollar Index, which measures the value of the greenback against a selection of major currencies, fell by 0.3% immediately after Trump's announcement on his platform, Truth Social. The 2-year Treasury yield, a figure sensitive to Federal Reserve actions, also decreased by 4 basis points, with one basis point equating to 0.01%.
Prior to Trump's announcement, stock futures were already experiencing a slight decline during overnight trading. Aside from the dollar, gold futures emerged as the biggest mover, gaining 0.3% amid the fluctuating market conditions. Wall Street is coming off a challenging session on Monday, as investors opted to take profits following a significant rally on Friday.
The 30-stock Dow fell by 349 points, or 0.8%, while the S&P 500 experienced a decrease of 0.4%. The tech-heavy Nasdaq also slipped by 0.2%, despite an earlier uptick driven by Nvidia. Trump's unprecedented removal of Cook raises questions about the independence of the Federal Reserve, as the law stipulates that a president can only remove a Fed governor for cause. This could lead to potential legal challenges surrounding the matter.
Currently, there are six members on the Fed's board, with one seat vacant following the resignation of Adriana Kugler earlier this month. If Cook is successfully removed, it would leave the board with five members, with non-Trump appointees still holding a majority. However, should Stephen Miran be confirmed for the Kugler vacancy and Trump successfully removes Cook, he would secure a 4-3 majority on the board. Furthermore, if Fed Chair Jerome Powell decides to leave his position voluntarily after his term ends in May, it could provide Trump with a fifth vote.
Investor sentiment is already leaning towards a hopeful outlook regarding potential lower interest rates anticipated in September, as indicated by Powell's remarks last week during the Jackson Hole symposium in Wyoming. Additionally, investors are eagerly awaiting Nvidia's upcoming earnings report on Wednesday, which has the potential to revitalize the megacap tech sector following its recent downturn.
The "Magnificent Seven" stocks saw a rally on Friday, recovering after five consecutive days of losses. Analysts, including Keith Lerner, co-chief investment officer at Truist Wealth, believe that the dominant theme of this bull market is centered around artificial intelligence (AI). Lerner expressed optimism about technology expectations heading into Nvidia's report, stating, "I still think long term, the dominant theme of this bull market is AI." He emphasized that regardless of Nvidia's performance, the underlying trend remains favorable for technology investments.
As Tuesday unfolds, a series of significant economic reports are scheduled for release. Investors will keenly analyze updates on the latest durable goods orders and consumer confidence. Additionally, the Case-Shiller Home Price Index and the Richmond Fed Manufacturing Index are set to be published, while Richmond Federal Reserve President Thomas Barkin is also expected to deliver remarks.
