If Trump gets his way and removes Jerome Powell as chairman of the U.S. Federal Reserve, the market reaction would be swift and brutal, Deutsche Bank’s George Saravelos argues.
Okay, lets game this out. The Trump Admin is stacked with private equity bankers, silicon valley hucksters, and individually super-wealthy plutocrats.
The estimated current valuation of the U.S. stock market is $46.2 trillion, according to Siblis Research. This value has tripled over the last 20 years. (In 2003, the total value was $14.2 trillion.) Based on this estimate, the richest 10 percent of U.S. households own roughly $42.7 trillion in stock market wealth, with the richest 1 percent owning $25 trillion. The bottom half of U.S. households own less than half a trillion dollars in stock market wealth.
So, we're left asking the simple question. If the market has an enormous sell-off, who will be doing the selling?
BlackRock, Vanguard, State Street? That's $21T of the $46.2T in equities right there. Which one of these titans blinks? How about Fidelity or JP Morgan Chase? Are they divesting to the tune of hundreds of billions of dollars if Jerome Powell is replaced?
And if they are divesting from the market, which equities are they selling?
The Mag7 make up over 50% of the valuation of the current S&P 500. If Jerome Powell is fired, which one of these stocks should I view as overvalued and look to sell off?
Because you can make a fuckton of money if you can answer this question correctly. Place your bets. Place your bets.
That said, I've heard a more compelling argument. The Mag7 is driving the current S&P 500 valuation. And the Mag7 is being propped up by speculative investment in new computer chips. Which means the real lynchpin in the economy is...
Back in May, Yahoo Finance's Laura Bratton reported that Microsoft (18.9%), Amazon (7.5%), Meta (9.3%), Alphabet (5.6%), and Tesla (0.9%) alone make up 42.4% of NVIDIA's revenue. The breakdown makes things worse. Meta spends 25% — and Microsoft an alarming 47% — of its capital expenditures on NVIDIA chips, and as Bratton notes, Microsoft also spends money renting servers from CoreWeave, which analyst Gil Luria of D.A.Davidson estimates accounted for $8 billion (more than 6%) of NVIDIA's revenue in 2024. Luria also estimates that neocloud companies like CoreWeave and Crusoe — that exist only to prove AI compute services — account for as much as 10% of NVIDIA's revenue.
These companies need lower borrowing costs in order to keep buying more chips. And Powell needs to go in order to lower interest rates, which will facilitate more borrowing and more chip-buying.
It is, in fact, Powell that is a mid-term threat to S&P 500 valuation thanks to his intractable stance on interest rates. And Trump's efforts to remove him are driven by his own cabinet's need to keep inflating the bubble that is the US Tech Sector.