Traders across Wall Street pushed stocks higher on Tuesday, demonstrating remarkable resilience in the face of unsettling developments at the Federal Reserve.
The S&P 500 climbed by a modest but significant 0.42 per cent, clawing back the losses from Monday and hovering tantalisingly close to its recent peaks just shy of 6500. This uptick came even as news broke of a dramatic overhaul at the Fed, where President Trump moved to oust Governor Lisa Cook amid allegations of mortgage fraud, marking an unprecedented intervention in the central bank’s governance.
Investors appeared to dismiss the potential for instability, focusing instead on the broader economic signals that suggested stability amid uncertainty. This shakeup, the first time in the Fed’s 111-year history that a president has fired a governor, has sparked legal battles and widespread concern among economists about the erosion of the institution’s independence.
Cook has vowed to challenge the dismissal in court, arguing that it violates the Federal Reserve Act’s protections against removals without cause. The market’s reaction stayed muted, with buyers stepping in to support equities and prevent a deeper slide.
Technical tensions in US stocks
This Fed turmoil unfolds against a backdrop of mixed technical indicators for stocks. The S&P 500 has struggled to dip below its 20-day moving average of 6392, a key support level that has held firm since the lows in April. Bulls have defended this threshold aggressively, underscoring the short-term upward bias in prices.
However, momentum oscillators tell a different story. The Relative Strength Index and Moving Average Convergence Divergence have formed lower highs compared to the overbought peaks seen in July, signalling a clear negative divergence from the price action. Such patterns often indicate exhaustion among buyers, where the enthusiasm that drove the rally begins to wane, setting the stage for a period of consolidation or correction.
History supports this cautionary view, as August and September have long earned notoriety as the most volatile months for US equities, with September posting the weakest average returns of any month. Over the past century, the S&P 500 has declined in September more often than not, with an average loss of about 0.7 per cent, driven by factors like end-of-quarter portfolio rebalancing and seasonal slowdowns in economic activity.
As summer winds down, traders brace for erratic swings, and this year proves no exception, with the VIX volatility index spiking by an average of 8.4 per cent in August alone based on data stretching back to 1990.
Global markets react cautiously
Global markets reflected this tentative mood, with movements remaining largely subdued as of mid-morning in Tokyo. Japan’s Topix index slipped by 0.2 per cent, reflecting ongoing concerns about yen strength and export competitiveness.
In contrast, Australia’s S&P/ASX 200 edged up by 0.2 per cent, buoyed by gains in mining stocks amid stable commodity prices. Hong Kong’s Hang Seng advanced 0.3 per cent, supported by tech sector rebounds, while mainland China’s Shanghai Composite dipped 0.1 per cent on worries over slowing manufacturing data.
European futures pointed to a modest opening, with Euro Stoxx 50 contracts rising 0.3 per cent, as investors awaited further clarity on monetary policy from the European Central Bank. These incremental shifts highlight a world economy grappling with uneven recovery, where regional divergences persist amid shared pressures from inflation and geopolitical tensions.
Currencies stay range-bound
Currencies traded in a narrow range, underscoring the lack of decisive momentum in foreign exchange markets. The Bloomberg Dollar Spot Index held steady, as traders weighed the implications of the Fed’s internal strife against hints of potential rate adjustments.
The euro remained unchanged at US$1.1633, finding support near its recent lows but failing to break higher amid eurozone growth concerns. The Japanese yen weakened by 0.2 per cent to 147.65 per dollar, continuing its slide as carry trades unwound.
Meanwhile, the offshore yuan showed little movement at 7.1492 per dollar, stabilised by People’s Bank of China interventions but vulnerable to US tariff threats. These currency dynamics reflect a broader wait-and-see approach, where participants hold back from bold positions until the dust settles on US policy directions.
Crypto turbulence intensifies
Cryptocurrencies faced sharper headwinds, with Bitcoin holding flat at US$111,294.45 after a bruising week that exposed the sector’s vulnerability to macroeconomic shifts. Ether dropped 0.6 per cent to US$4,562.26, pulling back from its recent highs. The primary cryptocurrency endured a gruelling decline last week, sliding gradually before plummeting to a multi-week low just under US$112,000 on Friday, ahead of Federal Reserve Chair Jerome Powell’s much-anticipated speech at the Jackson Hole symposium.
Powell’s remarks, which hinted at forthcoming rate reductions to support a cooling labor market while maintaining inflation targets, initially ignited a surge in Bitcoin, propelling it above US$117,000 within minutes. However, the gains proved fleeting, as the asset retraced to around US$115,000 over the weekend.
The real shock arrived Sunday evening, when Bitcoin tumbled several thousand dollars to below US$111,000, a level last visited on July 10. This abrupt drop wiped out roughly US$200 billion from the cumulative market capitalisation of all cryptocurrencies, bringing it to US$3.930 trillion.
Alternative coins followed suit, with Ethereum retreating from a fresh all-time high of US$4,950 to just over US$4,600, and Ripple struggling below the US$3 mark after rejection at US$3.1. Assets like Solana, Cardano, Tron, Dogecoin, Stellar, and Chainlink posted similar declines, while Sui, Litecoin, Aave, Pepe, Ena, Mantle, Okb, Uniswap, and Ethereum Classic suffered steeper losses of up to eight per cent.
Powell’s speech shifts market sentiment
Powell’s address provided critical context for these movements, emphasising a shift in risks where upside inflation pressures have diminished but downside employment threats have grown. He declared that the time has arrived for policy adjustments, with the direction toward easing clear, though the pace remains data-dependent.
Unemployment stands at 4.3 per cent, up from early 2023, but job gains persist, and inflation has cooled to 2.5 per cent over the past year. This dovish tilt initially fuelled optimism in risk assets, including cryptocurrencies, as lower rates typically encourage investment in speculative sectors.
Yet, the subsequent pullback in Bitcoin and its peers illustrates the market’s sensitivity to perceived over-optimism, with traders locking in profits amid fears of delayed cuts due to the Fed’s ongoing boardroom drama.
A precarious moment for markets
In my opinion, this moment feels precarious. Traders have shrugged off the Fed shakeup for now, but history warns against complacency. When presidents encroach on central bank autonomy, as Trump has by targeting Cook and nominating allies like Stephen Miran, it risks politicising decisions that should prioritise economic data over electoral timelines.
Past attempts to influence the Fed, such as during the Nixon era, led to inflationary spirals and eroded public trust. If Cook’s legal challenge succeeds or drags on, it could paralyse the board, delaying critical actions like rate cuts and amplifying volatility.
Stocks may remain buoyant near records, but the negative divergences in technicals suggest a digestion phase is looming, especially in the notoriously choppy August-September window. Investors should trim risk now, avoiding aggressive bets on equities until clarity emerges.
In cryptocurrencies, the volatility serves as a stark reminder of the asset class’s immaturity. Bitcoin’s wild swings around Powell’s speech mirror patterns from 2021 and 2024, where dovish signals sparked brief euphoria followed by sharp corrections. The sector’s US$3.93 trillion market cap, while impressive, remains dwarfed by traditional markets and prone to sentiment-driven dumps.
Ethereum’s retreat from its peak highlights how even strong performers falter when broader risk appetite wanes. That said, if the Fed delivers cuts in September despite the turmoil, crypto could rebound strongly, as cheaper borrowing often funnels capital into high-growth areas.
My advice aligns with the prudent strategy outlined in recent analyses: steer clear of over-leveraged positions in the near term, but position to capitalise on any volatility-induced dips ahead of the historically favourable October-to-March period for stocks and digital assets alike. The Fed’s independence hangs in the balance, and markets that ignore this do so at their peril.
Ultimately, sustainable growth demands policy rooted in expertise, not executive fiat, and the current path threatens to undermine that foundation.
Source: https://e27.co/septembers-market-curse-are-you-ready-for-the-volatility-storm-20250827/
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author. The latest book is Web4: The Age of Autonomous Intelligence.
