More Trump Turbulence and Fleeing Foreigners

April 21, 2025

By Robert Wiedemer

Market Spooked by Trump Talking about Firing Fed Chair Powell, but It’s Not Gonna Happen

The President spooked the markets today by making comments on social media that he would like to fire Fed Chair Powell.  Of course, he does not have the power to do that, but the market doesn’t seem to care. 

In addition to the legal issues preventing him from firing Powell, there would be pushback from his fellow Republicans in Congress, his supporters on Wall Street, and Powell himself, including many who do not want to see the Fed lose its independence.  It’s not going to happen, and Powell will be the Fed Chair until May 2026, when Trump can legally replace him.

However, the market is easily spooked and continues its bearish bias.  That said, it did rally over 1% in the last hour today, but that wasn’t enough to offset previous losses.

 Market is Spooking More Easily in Part Because Foreign Investors Are Pausing or Cancelling Purchases of US Assets

Part of what makes the market easier to spook is that I suspect Trump is spooking foreign investors even more than domestic investors.  Why?  The dollar has fallen 10% since the start of the year.  Many people think that a declining dollar reflects declining economic or military strength or foreign perception of such. 

That is sort of true but not very accurate.  What a declining dollar means is that foreigners are selling US assets – stocks, bonds and real estate.  Or some foreign investors are postponing purchasing bonds, stocks or real estate while others are selling.   Postponement of investments is the biggest problem because it is so easy to postpone buying stocks or bonds.  That money can be easily parked in their own country’s money market funds until needed.

In many cases, postponing real estate purchases is not that hard either.  I was surprised to learn that 13% of the homes purchase in the US last year were purchased by Canadians.  Now, Canadians are postponing or cancelling purchases of US homes.  A lot of foreign commercial real estate buyers are already apprehensive about the US office and retail markets, and the current financial turmoil would make them even more likely to postpone a purchase.

 Will Spooked Foreign Investors Hurt the Inevitable Market Rebound?

I think the rebound may not move upward as fast as it would if foreign investors hadn’t been so spooked by the Trump Turbulence.  However, once the stock market starts going up, fear of missing out (FOMO) will drive foreigners into US stocks, just as it would US investors.

However, bonds and real estate will not rebound as much.  They both still face lots of problems due to high interest rates.  Plus, many commercial real estate sectors are overbuilt and facing demand problems. 

Hence, many foreigners may decide to diversify their portfolios away from US bonds and real estate.  Do they really offer a better investment opportunity than many non-US bonds or real estate?  Probably not in many cases. 

Although some foreign investors may want to diversify away from US stocks, I suspect that once they start moving up again that will be a big incentive to jump back in.