Wall Street ended the trading week in the red as most of the Magnificent Seven stocks reporting earnings did not lift sentiments, contributing to tech trade sell-off. The Federal Reserve hit a pause in its interest rate cutting cycle, and precious metals suffered a rollercoaster of highs before turning lower. The S&P 500 managed to cross the 7000 level for the first time on Tuesday before retracing back.
Gold reached $5600 mid-week as the dollar weakened, before coming down on Friday when Trump nominated Kevin Warsh to become the Fed chair. This past week on earnings, Microsoft endured one of its worst sell-off days even after a positive result and Meta shares also declined despite a beat on earnings.
For the week, the S&P added 0.3%, while the Nasdaq dipped 0.2%, and the Dow fell 0.4%.
Future Wealth’s View
Relentless attacks on Federal Reserve’s independence, “on again, off again” tariffs and unreliable foreign policy have pushed the dollar close to a multiyear low. A cheaper currency could mean that foreigners buy more U.S. products. But, foreign governments are not thrilled about buying any more US Treasury bonds. In fact, most are dumping US bonds as US foreign policy begins to alienate allies and enemies alike.
What are the foreign governments buying with their money? – Gold. We do not look beyond the surging prices of gold and other commodities to deduce that US currency is losing ground as the favored reserve currency and much like our President, losing credibility. Of course, the stock market has made US consumers richer as it hits new highs. But, foreigners who park so much of their savings and reserves in American assets have earned less on U.S. stocks translated into their own currencies and have lost money on Treasury debt.
While Trump and Treasury Secretary Scott Bessent may be inclined to let the dollar drift lower, the new Fed chair will have his work cut out for him as deficits continue to mount and the Fed Reserve will have to print money to buy the Treasury bonds if foreign governments refrain from buying.