In a stunning display of market resilience, the Dow Jones Industrial Average and S&P 500 both closed at fresh all-time highs on Monday, recovering from steep early losses triggered by the unprecedented Department of Justice investigation into Federal Reserve Chair Jerome Powell.

The Dow finished up 86.13 points, or 0.17%, at 49,590.20. The S&P 500 rose 0.16% to 6,977.27. The Nasdaq Composite gained 0.3% to close at 23,733.90. All three indexes touched intraday records before settling near session highs.

From Panic to Record Highs: The Intraday Journey

Monday's trading session told a remarkable story of investor psychology. At session lows, the Dow had plunged nearly 500 points as traders digested Fed Chair Powell's bombshell Sunday night video statement revealing the criminal investigation. The S&P 500 was down 0.5%, and safe-haven assets like gold surged past $4,600 per ounce.

Yet by the close, all of those losses had been erased and then some. The reversal suggests that institutional investors, while acknowledging the gravity of the Fed situation, have concluded that the fundamental economic and corporate earnings backdrop remains supportive of equity valuations.

"The market is telling us that while the Powell situation is concerning, it's not systemically threatening. Corporate America is still generating profits, employment remains solid, and the consumer is spending. Those fundamentals matter more than political theater."

— Chief market strategist at a major investment firm

What Powered the Recovery

Several factors contributed to the dramatic turnaround:

  • Walmart's strength: The retail giant rose sharply, providing ballast for the Dow and signaling continued consumer spending power
  • Technology resilience: Despite broader concerns, mega-cap tech names found buyers in the afternoon
  • Earnings optimism: JPMorgan's strong Q4 results released early Tuesday morning were anticipated, boosting financial sector sentiment
  • Rate cut expectations: Ironically, the Fed turmoil may be increasing expectations for rate cuts later this year, supporting equity valuations

The Russell 2000 Joins the Party

Perhaps more notably, the small-cap Russell 2000 index also touched a fresh all-time high on Monday. Small-cap stocks, which are more sensitive to domestic economic conditions and interest rates, have been staging a quiet renaissance in early 2026.

The broadening of market leadership beyond the mega-cap "Magnificent Seven" technology stocks suggests a healthier market structure than the narrow rallies of recent years. If small and mid-cap stocks can sustain their momentum, it could signal a more durable bull market phase.

Bank Stocks: The Complicated Picture

Not all sectors shared in Monday's recovery. Bank stocks faced a double whammy from the Powell investigation and President Trump's proposal to cap credit card interest rates at 10% for one year.

Capital One plunged 7%, while Citigroup fell 3%. Synchrony Financial and other consumer lenders with high credit card exposure were also hit hard. However, the broader financial sector stabilized as investors differentiated between consumer lending-focused banks and those with more diversified business models.

The Inflation Test Ahead

Tuesday's trading will hinge significantly on the December Consumer Price Index report, due at 8:30 a.m. Eastern. Economists expect headline inflation to hold steady at 2.7% year-over-year, while core CPI is projected to tick up slightly to 2.7% from November's 2.6%.

A hotter-than-expected reading could test the market's newfound resilience by pushing rate cut expectations further into the future. Conversely, a cooler print could extend the rally by reinforcing the soft-landing narrative that has supported stocks throughout the recent rate-cutting cycle.

What History Says About Markets and Fed Crises

While the DOJ investigation into a sitting Fed chair is unprecedented, markets have weathered political challenges to central bank independence before. During the 2019 episode when President Trump publicly pressured Powell to cut rates more aggressively, the S&P 500 ultimately gained 29% for the year.

The key variable is whether actual monetary policy becomes compromised. As long as the Fed can continue making decisions based on economic data rather than political pressure—and as long as markets believe it can—equity valuations can remain supported.

The Week Ahead: Earnings Take Center Stage

Beyond today's CPI report, a parade of major bank earnings will command investor attention:

  • Tuesday: JPMorgan (released), BNY Mellon
  • Wednesday: Bank of America, Citigroup, Wells Fargo
  • Thursday: Goldman Sachs, Morgan Stanley

These results will provide crucial insight into the health of consumer credit, investment banking activity, and overall economic momentum. Strong numbers could further validate the market's optimistic stance; disappointments could test the resilience demonstrated Monday.

What Investors Should Consider

Monday's record closes amid significant uncertainty offer both encouragement and caution. On the positive side, the market's ability to quickly absorb negative shocks suggests robust underlying demand for equities. On the cautionary side, the V-shaped recovery may reflect complacency about genuine risks.

For long-term investors, the key takeaways include:

  • Stay diversified: Monday's sector divergences (tech up, banks down) underscore the value of broad market exposure
  • Don't panic sell: Those who exited at Monday's lows locked in losses before the recovery
  • Expect volatility: Record highs don't mean smooth sailing; the Fed situation will continue generating headlines
  • Focus on fundamentals: Earnings, employment, and inflation data matter more than political noise

As one veteran portfolio manager observed: "Records are made to be broken, but they're also made to be tested. Monday showed the market's resilience, but the real test is whether we can hold these levels through the inflation data and the ongoing Fed drama. Stay invested, but stay alert."