Why Even High-Quality Financial Stocks American Express, Blackstone, and Ally Financial Plunged Today

Shares of large-cap financial stocks, even blue chip names such as American Express (NYSE: AXP), Blackstone (NYSE: BX), and Ally Financial (NYSE: ALLY), plunged on Monday, with the above three stocks falling 4.3%, 7.8%, and 5.1%, respectively, as of 2:17 p.m. ET.

The across-the-board declines were likely due to angst over President Donald Trump's morning social media post regarding Federal Reserve Chairman Jay Powell, which some investors took as a threat to the Fed's independence. That opens up a potential new risk around reigniting inflation.

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On top of this, China sent out a new threat to countries potentially making trade deals with the U.S., which could complicate the process for getting deals done. Inking trade deals is likely the biggest element that could relieve pressure on stocks and long-term Treasury bonds.

Trump calls Fed Chair Powell "Mr. Too Late"

The administration's current tariff policies, if implemented, pose dual risks to the economy, both from a recessionary perspective as well as an inflationary perspective, and could lead to an unfortunate scenario called stagflation.

Last Friday, Fed Chair Jay Powell said those dual pressures would probably lead the Fed to continue its pause on interest rate cuts for some time. This is because the likely price increases from tariffs would lead to high inflation prints in the coming months. In that scenario, Powell and other Fed officials have stated they would be wary of long-term inflation expectations becoming unanchored. Thus, the Fed would likely keep rates restrictive in that scenario, even though that could weaken the economy further.

Trump clearly was not a fan of that take, and took to his social media platform Truth Social this morning, posting:

"Preemptive Cuts" in Interest Rates are being called for by many. With Energy Costs way down, substantially lower, and most other "things" trending down, there is virtually No inflation. With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW. Europe has already "lowered" seven times. Powell has always been "To Late," except when it came to the Election period when he lowered in order to help Sleepy Joe Biden, later Kamala, get elected. How did that work out?

Investors clearly didn't like the president pressuring the Federal Reserve chair, which some see as a threat to the Fed's independence, which would pose risks to the economy, and especially inflation. The broader markets were down substantially this morning on that news, with basically all economically sensitive stocks, such as financial sector stocks, down substantially.

There was also additional saber-rattling from China regarding the trade war. Today, China's Ministry of Commerce said: "China firmly opposes any party reaching a deal at the expense of China's interests. If this happens, China will not accept it and will resolutely take reciprocal countermeasures."

The market is counting on the administration to make swift trade deals with allies to alleviate some of the economic concerns regarding tariffs. However, if China makes threats on any countries inking such deals, it could make those deals harder to get done. That could lead to a lack of follow-through on trade deals, which could set the market back again.

An ongoing tariff war, along with uncertainty regarding the Fed's independence to keep inflation in check, is roiling basically all economically sensitive stocks. In addition, the yield on the 10-year Treasury Bond actually rose today, perhaps reflecting those inflation fears.

While higher rates would, in a vacuum, be somewhat beneficial to lenders like American Express and Ally Financial, a recessionary scenario could lead to lower lending activity and increased charge-offs. A recessionary scenario could also impact payment volumes over American Express' card network.

The picture is also mixed for Blackstone, the world's largest private equity company. While the depressed market could open up opportunities for Blackstone to deploy its $177 billion of "dry powder" cash, it could also make "exits" from existing investments more difficult, and could therefore lower its variable dividend payouts in the near term. Blackstone also has a private credit lending arm, and therefore could see the same trade-offs from higher inflation and interest rates as American Express and Ally in that regard.

These high-quality companies are strong today, but uncertainty is clouding the picture

All three companies reported last week, and all beat their earnings estimates, with Ally only slightly missing revenue estimates. This week, Wall Street sell-side analysts are giving mixed impressions of each stock, with some raising and some lowering their price targets.

Thus, it doesn't appear that company-specific elements are really moving these stocks today. However, the mixed outlook from sell-side analysts points to the high uncertainty these stocks are experiencing in the near to medium term as a result of Trump's tariff/trade war.

That said, periods of high uncertainty are generally good times for the long-term investor to buy shares of high-quality stocks. To this investor, Blackstone, with its $177 billion of dry powder and down 35% from its highs, and American Express, with Buffett's backing, a higher-end customer base, and also now down 23% from its highs, could make good targets at these discounted prices.

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American Express is an advertising partner of Motley Fool Money. Ally is an advertising partner of Motley Fool Money. Billy Duberstein and/or his clients have positions in Blackstone. The Motley Fool has positions in and recommends Blackstone. The Motley Fool has a disclosure policy.