S&P 500 Defies Political Turmoil: Jumps 0.41% Despite Trump’s Surprise Firing of Fed Governor Lisa Cook

Markets shrug off political drama as S&P 500 climbs 0.41%—because nothing says 'stable economy' like firing key financial regulators mid-week.

Wall Street's Resilience

Traders barely blinked when news broke about Lisa Cook's abrupt dismissal. The index pushed forward anyway, proving yet again that markets care more about momentum than political posturing.

Presidential Power Play

Trump's move against the Fed governor failed to dent investor confidence. Instead, buyers piled in—maybe betting that volatility creates opportunity, or maybe just numb to the constant chaos.

Zero Self-Reference Section

Financial instruments kept churning while political headlines blared. Because let's be honest: Wall Street's attention span lasts exactly as long as the next earnings report.

Closing Thought

Another day, another reminder that markets digest political shocks faster than politicians can create them. The real question isn't whether stocks can weather the storm—it's whether anyone's even surprised anymore when they do.

Traders load up on short VIX bets as volatility vanishes

While the political noise grew louder, traders kept betting on peace and calm. Volatility has disappeared from markets, and hedge funds are acting like it’ll stay gone. Short bets on the Cboe Volatility Index (VIX) are piling up.

As of August 19, net short positions in VIX futures stood at 92,786 contracts. That’s the highest since September 2022, based on Commodity Futures Trading Commission data.

That positioning comes just months after a similar calm backfired. In February, the S&P 500 hit a high before turbulence hit markets over fears of Trump’s escalating trade wars and possible recession fallout. Again in July 2024, traders loaded up on VIX shorts. Then in August, the yen carry trade imploded and rattled global assets. The CFTC’s data doesn’t cover exchange-traded products or strategies that mix long and short positions, but the risk is clear. Volatility bets are dangerously crowded.

Even so, the VIX is still below 15, and that’s 24% lower than its one-year average. That low came last Friday after Fed Chair Jerome Powell backed a September rate cut. Stocks responded by climbing, keeping VIX suppressed. But the lower it goes, the more traders could be exposed if anything flips the script.

Cook firing draws Nixon comparisons as markets flash warning signs

Trump’s decision to fire Cook drew instant comparisons to President Richard Nixon, who in 1972 leaned hard on Fed Chair Arthur Burns to ease policy ahead of his re-election. Craig Chan, head of FX strategy at Nomura, said Trump’s MOVE “may refocus” investors on the Nixon playbook.

While today’s environment includes floating exchange rates and crypto flows, Chan noted how in both cases, the president pressured the Fed during an election year.

The consequences during Nixon’s time were severe. The ICE U.S. Dollar Index climbed 0.5% after the 1972 election, peaked in January, then tumbled 18% by July 1973. Stocks also followed a pattern. The Dow rose 6% from November to mid-January 1973, but within a year dropped 19%.

By the second year, the drawdown reached 44%. On the bond side, the 10-year Treasury yield spiked 130 basis points, from Nov. 6, 1972, to Aug. 7, 1973, hitting 7.58%, far above 2025’s 4.3% level.

Chan warned that while the dynamics aren’t identical, no Gold standard today, no Bretton Woods structure, there’s still a playbook for what could go wrong.

And the market’s reaction on Tuesday showed just how much investors still trust the Fed’s independence. Stocks went up, but the dollar slipped 0.3%, bringing 2025’s total decline to almost 10%. Gold futures climbed too, as investors hedged against a politicized central bank that may fall behind on inflation.

Chan added that if investors start to believe the Fed has lost independence, there are “risks to a weaker USD.”

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