Wall Street Pushes to New Highs as Markets Look Past Fed Tensions and Bet on Corporate Strength

BY EMMANUEL OGBONNA

U.S. stocks climbed to fresh records Monday, recovering from late-week jitters sparked by an escalating dispute between the White House and the Federal Reserve, a confrontation that some economists warn could eventually fuel higher inflation and unsettle financial markets.

The S&P 500 inched higher to extend its record-setting run, adding 0.2% after closing at an all-time high on Friday. The Dow Jones Industrial Average erased an early slump of nearly 500 points to finish up 86 points, also notching a new record, while the Nasdaq composite advanced 0.3%, supported by continued enthusiasm for technology and artificial intelligence.

Despite the gains, signs of unease lingered beneath the surface. Investors nudged money into traditional safe havens, pushing gold sharply higher and weighing on the U.S. dollar, amid concern that political pressure on the central bank could erode its independence over time. Such fears tend to revive worries about inflation and the long-term credibility of U.S. monetary policy.

Retail giant Walmart provided a notable boost to the market, rising 3% after it was announced the company’s shares will be added to the Nasdaq 100 index, a move that often attracts additional investment from funds that track the benchmark. Shares of Google’s parent company, Alphabet, also climbed after the company said it would expand shopping features in its artificial intelligence chatbot through partnerships with Walmart and other major retailers.

Alphabet’s rise lifted its total market value above $4 trillion, a milestone reached after months of strong gains driven largely by investor optimism surrounding its AI initiatives. The company has been one of the biggest beneficiaries of Wall Street’s enthusiasm for artificial intelligence, which has reshaped market leadership over the past year.

Not all sectors shared in the rally. Credit card companies fell sharply after President Donald Trump said he wanted to impose a one-year cap of 10% on credit card interest rates, a move that would significantly squeeze profits. Synchrony Financial dropped 8.4%, Capital One slid 6.4%, and American Express fell 4.3%, dragging down financial stocks more broadly.

Still, the most intense focus among investors centered on developments in Washington. Over the weekend, Federal Reserve Chair Jerome Powell disclosed that the U.S. Department of Justice had subpoenaed the central bank and raised the prospect of criminal charges related to his testimony about renovations at the Fed’s headquarters.

In an unusual video message released Sunday, Powell said the investigation and the renovation issue were being used as a pretext to threaten him, arguing that the real motive was retaliation for the Fed’s refusal to set interest rates according to the president’s wishes. Powell said the central bank was acting based on its assessment of what best serves the public, not political pressure.

The Fed has been locked in a highly public feud with Trump, who has repeatedly criticized Powell and urged the central bank to cut interest rates more aggressively to stimulate economic growth. While the Fed lowered its benchmark rate three times last year and has signaled that additional cuts could come this year, it has moved cautiously, prompting Trump to label Powell “Too Late.”

White House press secretary Karoline Leavitt told reporters Monday that Trump did not instruct the Justice Department to investigate Powell, seeking to distance the president from the legal threat facing the Fed chair.

The Federal Reserve has long operated with a degree of independence from political leaders, a structure designed to allow policymakers to make unpopular decisions—such as keeping interest rates high to fight inflation—without direct political interference. Economists widely regard that independence as essential to maintaining price stability and market confidence.

In the bond market, the yield on the 10-year Treasury rose briefly to 4.21% from 4.18% late Friday, reflecting investor concern that diminished Fed independence could eventually lead to higher inflation. The yield later settled back near 4.18% as markets steadied.

Currency markets also reacted. The dollar weakened 0.4% against the euro and 0.6% against the Swiss franc, while gold surged 2.5% to a record settlement of $4,614.70 an ounce, highlighting lingering demand for assets viewed as protection against uncertainty.

Some analysts said markets appeared to be taking a measured view of the confrontation. Thierry Wizman, a strategist at Macquarie Group, said investors may believe there are limits to how far the White House can go in influencing the Fed, particularly because Congress could block confirmation of future nominees seen as overly political.

Republican Sen. Thom Tillis of North Carolina weighed in publicly, saying the controversy raised questions about the credibility of the Justice Department. He said he would oppose confirmation of any future Federal Reserve nominees, including the next chair, until the legal matter involving Powell is resolved.

Trump has already sought to remove Fed Governor Lisa Cook, though the central bank’s rate-setting committee has continued to operate without obvious political influence. Some analysts suggested the pressure could even prompt Powell to remain on the Fed’s board as a governor after his term as chair ends in May, keeping his vote in place through the expiration of his term in 2028.

Brian Jacobsen, chief economist at Annex Wealth Management, said such a move would limit the president’s ability to reshape the Fed’s leadership. He added that the political standoff may harden Powell’s resolve rather than weaken it.

Elsewhere on Wall Street, apparel retailer Abercrombie & Fitch plunged 17.7% after issuing a profit forecast for the final quarter of 2025 whose midpoint fell short of analysts’ expectations. The company also projected slower revenue growth, sparking a sell-off that spread to other mall-based clothing retailers. Urban Outfitters dropped 12.3%, while American Eagle Outfitters slid 3.5%.

By the closing bell, the S&P 500 had risen 10.99 points to 6,977.27. The Dow Jones Industrial Average gained 86.13 points to 49,590.20, and the Nasdaq composite added 62.56 points to finish at 23,733.90.

Overseas markets were mixed. European stocks traded unevenly, while shares in Asia advanced more decisively. Hong Kong’s market jumped 1.4% and Shanghai rose 1.1%, buoyed by reports that Chinese leaders were preparing additional measures to support the economy, providing a lift to global sentiment despite ongoing political and monetary policy uncertainty in the United States.