Nothing matters but rate cuts and Nvidia for investors
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Photo illustration: Brendan Lynch. Photos: Chesnot/Getty Images and Al Drago/Bloomberg via Getty Images
As long as interest rate cuts are coming and Nvidia reports solid earnings later Wednesday, investors seem willing to ignore the market risks that could come from President Trump trying to fire Fed governor Lisa Cook.
Why it matters: It's the latest example of equity market investors shrugging off any headwinds that come their way. The more that happens, the more stretched valuations get, and the more at risk this market may be.
What they're saying: "Is this generally negative for stocks, bonds and the dollar? My sense is, yes, but we also need many more questions answered," Kevin Gordon, senior investment strategist and director at Charles Schwab, wrote in an email to Axios.
Zoom in: Here are a few potential explanations for Wall Street's muted reaction to the administration threatening the independence of the central bank.
- The legality of the firing is unclear, so investors don't know whether to price it in.
- This isn't just uncertain, it's also unfamiliar territory.
- A Fed committee sets policy on interest rates, so one member doesn't necessarily change the path forward.
- Or, markets simply "don't care for now," Mohamed El-Erian, chief economic adviser at Allianz, tells Axios.
Be smart: The reaction reflects the stock market playbook for 2025: Focus on "exciting corporate prospects" and sideline "sovereign issues."
- Sovereign issues, like the Fed's credibility or central bank independence, may come, but they're opaque and therefore hard to trade on.
- The playbook instead favors backing large corporates no matter what, since they've just proven they can weather storms ranging from a pandemic to record inflation to tariff policy.
Yes, but: That thesis would suggest a defensive tilt to the market, which hasn't fully materialized yet.
- Investors are still positioning around rate cuts rather than concerns about central bank independence of the economy at large.
What we're watching: Of course, all this euphoria could be derailed by one whiff of weakness in Nvidia earnings, which come out Wednesday after the closing bell.
- The company represents 3% of the global stock market.
- And its biggest customers are the other top 10 companies in the S&P 500.
- Where Nvidia goes, so goes the market. It's impossible to overstate how critical it is for the company to deliver quarter after quarter.
