S&P 500 Stalls as Trump Tariff Threats and Powell Resignation Rumours Rock Markets

The S&P 500’s formidable advance has met a wall of resistance, not from a sudden collapse in earnings or a hawkish pivot from the Federal Reserve, but from the re-emergence of political spectre. A combination of renewed tariff rhetoric from former President Donald Trump and a rapidly quashed rumour concerning the tenure of Fed Chairman Jerome Powell has been sufficient to halt the index’s record-setting trajectory. This pause offers a valuable insight: after months of singular focus on inflation data and monetary policy, the market is being forced to reacquaint itself with the complex and often unpredictable nature of political risk.

The Tariff Spectre and the Art of Pricing Political Risk

The prospect of a significant shift in US trade policy has returned to the forefront of investor concerns. Proposals circulating include not only a baseline 10% tariff on all imported goods but also potentially punitive rates exceeding 60% on goods from China.¹ This is not a simple replay of the 2018–2019 trade disputes. The global economy is now in a far more fragile state, having absorbed the shocks of a pandemic and a subsequent inflationary wave. The introduction of broad-based tariffs in the current environment would present a multi-faceted problem for corporations, threatening to compress margins through higher input costs while simultaneously risking a demand shock if those costs are passed on to consumers who are already contending with high prices.

The market’s reaction reveals a clear bifurcation in performance. Companies with high levels of international revenue exposure have logically come under pressure, while those with a predominantly domestic focus have demonstrated greater resilience. This dispersion is a rational repricing of risk, moving beyond broad market sentiment to a more granular assessment of individual corporate vulnerabilities.

Source: Data compiled from FactSet Geographic Revenue Exposure analysis.

Anatomy of a Rumour: The Market’s Powell Jitters

Adding a layer of pure operational uncertainty to the mix was the rumour that Chairman Powell was considering resignation. While the claim was swiftly and officially denied by a Fed official, its brief lifespan was instructive.² The market’s sharp, albeit temporary, negative reaction demonstrated an acute sensitivity to the stability of the central bank’s leadership. For the past two years, investors have become accustomed to a Fed that, while aggressive, has been highly communicative and predictable in its strategy. The mere suggestion of a leadership vacuum, particularly at such a delicate juncture in the economic cycle, was enough to trigger significant alarm.

This incident serves as a stress test, revealing just how much of the market’s stability is predicated on the perceived credibility and consistency of the Federal Reserve. Any event that threatens this foundation, whether real or rumoured, has the potential to inject a high degree of non-fundamental volatility into asset prices. It underscores that the person at the helm is considered just as critical as the policy they enact.

Bonds as a Barometer of Fear

The bond market’s behaviour amidst this noise has been predictably defensive. The slide in US Treasury yields represented a classic flight to the perceived safety of government debt as equities wobbled. The 10-year Treasury yield, a critical benchmark for global finance, dipped in response to the increased uncertainty. However, it is crucial to distinguish this short-term, headline-driven move from the underlying trend. The more significant driver for yields remains the path of inflation and the Fed’s response to it. Until macroeconomic data shows a sustained cooling of price pressures, the prevailing bias for yields is likely to remain elevated, limiting how far any risk-off rally in bonds can run. The market is caught between immediate fears of political disruption and the more persistent, fundamental concern of inflation.

Positioning for a Noisy Quarter

The confluence of these events suggests that the investment landscape for the coming months will be shaped as much by political headlines as by economic data releases. This environment calls for a nuanced approach to portfolio construction. A strategic tilt towards quality and domestic orientation appears prudent. Sectors such as utilities and real estate, with their low dependence on international trade, may offer a degree of insulation from tariff-related shocks.

The larger speculative question, however, is whether the market is correctly pricing the second-order effects of these risks. The consensus view is that tariffs are a straightforward negative for growth and equities. A contrarian hypothesis worth considering is that a severe trade shock could prove deflationary by crushing consumer and business demand. Such a scenario could, paradoxically, force the Federal Reserve to abandon its “higher for longer” stance and pivot towards rate cuts far sooner than currently anticipated. In this complex, non-linear outcome, the initial losers of a trade dispute could become the ultimate beneficiaries of a renewed dovish policy environment.

References

1. Reuters. (2024, July 11). Trump’s tariff barrage knocks Wall St futures lower. Retrieved from https://www.reuters.com/business/finance/trumps-tariff-barrage-knocks-wall-st-futures-lower-2025-07-11/
2. Investing.com. (2024, July 10). S&P 500 falls after Pulte claims Powell considering resignation. Retrieved from https://ph.investing.com/news/stock-market-news/sp-500-falls-after-pulte-claims-powell-considering-resignation-1903320
3. FinFluentialx. [@FinFluentialx]. (2024, July 11). S&P 500 Halts Record-Breaking Run as Bonds Slide Trump promises higher tariffs on most countries Powell Rumoured To Resign [Post]. Retrieved from https://x.com/FinFluentialx/status/1881023861979808073