The major U.S. equity indexes were modestly higher Tuesday despite another attempt by President Donald Trump to impose his will on the Federal Reserve and perhaps in part because his administration plans to buy more stocks.
Shortly after 8 p.m. Eastern Standard Time on Monday, President Trump posted on his Truth Social platform a letter to Fed Governor Lisa Cook informing her of her removal from the Federal Reserve Board "for cause."
The president cited allegations of mortgage fraud raised by Federal Housing Finance Administration Director Bill Pulte.
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And, following the federal government's recent conversion of approximately $9 billion in grants to Intel (INTC, -0.8% ) included in the CHIPS Act of 2022 into a 10% equity stake, National Economic Council Director Kevin Hassett and Commerce Secretary Howard Lutnick confirmed the White House will explore purchases in other sectors.
Pentagon officials are "thinking about" buying defense stocks such as Lockheed Martin (LMT, +1.8%), Lutnick said on CNBC. "Oh, there's a monstrous discussion about defense," Lutnick responded when asked whether the White House would make similar deals with different government contractors.
"I'm not sure which is more unsettling," observes Harris Financial Group Managing Partner Jamie Cox, "the government upending Federal Reserve independence or taking large stakes in private businesses."
Boeing (BA, +3.5%) – whose Defense, Space & Security unit has big contracts with the Defense Department as well as foreign military customers – was No. 1 among the 30 Dow Jones stocks Tuesday.
BDS revenue grew by 10% during the second quarter to $6.6 billion, making it Boeing's second-biggest operating unit at 29% of total revenue. BA stock is going to be a big holding in just about any of the best aerospace and defense ETFs.
"The U.S. took stakes in large banks during the Global Financial Crisis and the stocks were dead for 10 years," Cox notes, "so caution is warranted for any company who cedes a stake to the government right now."
By the closing bell, the blue-chip Dow Jones Industrial Average had risen 0.3% to 45,418, the broad-based S&P 500 was up 0.4% to 6,465, and the tech-heavy Nasdaq Composite had added 0.4% at 21,544.
Can President Trump fire Fed Governor Cook?
Can President Trump fire Fed Governor Cook? raises one of those truisms you get used to when you hang around long enough.
Markets hate uncertainty – even more when it comes to monetary policy and interest rates. But, with questions about the most important central bank in the world seemingly compounding by the day, markets remain relatively calm.
"The President is going to remake the Board of Governors of the Federal Reserve over the next year," Cox says, "and he's doing so in very unconventional ways." According to Cox, Fed Governor Adriana Kugler's recent resignation and Cook's removal, if successful, would "open the door to accelerate this change."
In the process, Cox notes, "Trump has essentially usurped the Fed's forward guidance function for the time being." Investors, traders and speculators are reacting to Trump basically telling them lower interest rates are on the way, with short-term Treasuries "dropping like a rock" and a steepening yield curve.
The yield on the 2-year Treasury note fell to 3.685% vs 3.730% as of Monday's closing bell, and the yield on the 10-year U.S. Treasury note was down to 4.261% vs 4.275% Monday. But the 30-year yield rose to 4.911% from 4.889%.
Shorter-dated Treasuries are more sensitive to Fed interest rate policy. Longer-dated Treasuries say more about the macro picture.
The U.S. Dollar Index (DXY) – a measure of the currency's value relative to a basket of foreign currencies including the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc – was down modestly from 98.43 to 98.24.
The employment market hardens
Meanwhile, incoming data so crucial to the next Fed meeting continues to underscore what the July jobs report showed: The employment market is hardening.
The Conference Board's Consumer Confidence Index dipped to 97.4 in August from 98.7 in July, as consumers' feelings about both current and future business, labor and income conditions worsened.
Indeed, the Expectations Index declined by 1.2 points to 74.8, below the threshold of 80 that typically signals a recession ahead. "Notably," according to The Conference Board Senior Economist Stephanie Guichard, "consumers' appraisal of current job availability declined for the eighth consecutive month."
As LPL Chief Economist Jeffrey Roach notes, it's the worst employment outlook in more than four years. "Consumer confidence in August dipped ever so slightly as more consumers expect annual inflation to rebound. But the biggest news is the number of consumers saying jobs are hard to get."
That number is the highest it's been since March 2021. And those feelings about the present and the future "will likely translate into lower consumer spending."
Everybody wants to see Nvidia's earnings
We'll know after Wednesday's closing bell whether a fiscal 2026 second-quarter earnings report from Nvidia (NVDA, +1.1%) is a bigger market-moving story than Trump and the Fed.
And we'll be following all the action, including CEO Jensen Huang's always fascinating conference call commentary, on our live Nvidia earnings blog.
Wall Street expects Nvidia to report earnings of $1.01 per share, up from 68 cents a year ago, on revenue growth of 53% to $46 billion.
"The market is waiting for the Nvidia numbers," writes Louis Navellier of Navellier & Associates, "where the downside of any disappointments is probably greater than the upside of an even stronger outlook that is already priced into the world's most valuable stock."
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