All eyes turn to Kevin Warsh’s first FOMC presser

It was risk on

Investors, Traders and Algo’s celebrated yesterday as news of a preliminary U.S.-Iran agreement to reopen the Strait of Hormuz and end the 4-month conflict sparked a powerful relief rally across global markets. When we woke up – the screens said it all…. Asian markets were higher, European markets were higher, and US futures were surging. Oil was plunging (down 5%), Gold was surging (up 3%), Treasuries were being bought and that sent yields lower, (the 2 yr was down 7 bps) the VIX weakened and the sun was peeking its head just above the horizon…..and the mood went from dull an achy to let’s get this party started!

The move left many to ask the obvious question – What is Kevy (Warsh) thinking now? Remember – the market is now pricing in ONE rate HIKE this year – and we can argue if we think that’s correct or not, (I am not in the camp that he will, but the threat is on the table) because if you’ve been following along, then you know that rising oil prices, stubborn inflation and concerns about higher interest rates have been the biggest threats to this bull market over the last several weeks.

Yesterday, all that changed- The news that Trump has succeeded in bringing Iran to its knees was the headline that lit the fuse….…..And by the end of the day it was green across the screen and that AI trade that remains so sensitive to the headlines, well, it is alive and well….

By the end of the day – this is what the scoreboard looked like - the Dow gained 486 pts or 0.9%, the S&P added 122 pts or 1.25%, the Nasdaq surged by 795 pts or 3.1%, the Russell added 22 pts or 0.7%, the Transports LOST 245 pts or 1% (think rotation), the Equal Weight S&P added 44 pts or 0.5% while the Mag 7 rose 927 pts or 2.7%.

Of the 11 S&P sectors – TECH stole the show…rising 3.8%, Consumer Discretionary was a distant second at +1.7%, Industrials +1.4%, Basic Materials rose 0.6%, Utilities +0.5%, Financials were up 0.4%, Communications +0.5%, while Energy got punched in the face – down 3.5% (think lower oil prices), Healthcare lost 0.6%, Consumer Staples lost 0.4%, while Real Estate gave back 0.8%.

Within Tech – we saw Disruptive Tech up 5.3%, the Growth trade up 2.8%, Cyber was u 1.1%, Semi’s surged by 5%, Robotics & AI up 5.5%, Software rose by 2.8% and the Quantum trade added 4.2% while individual names like IONQ was up nearly 6%, QBTS up 12%.

And the memory names…. well, they continued to explode higher…. – the DRAM etf gained 9.3% - MU up 10%, Busting up and thru resistance at the $1030 area and kissing it’s all time high of $1089, before closing just a hair below at $1087. WDC was up 16% and STX added 9.5%.

And the latest addition to the investing family? SPCX? Yeah, it continued to push higher…gaining another 20% to end the day at $192/share. Investors are preparing for the almost immediate inclusion of SPCX into the indexes and that just means more demand by the passive investment industry.

One thing that made no sense – at least at first glance – were the transports? They fell 295 pts! WHAT???? Think about it. Oil got hammered—falling nearly 5%. Lower fuel costs should be a gift for airlines, truckers, railroads, and shippers. In fact, airline stocks did move higher – gaining 3.5%.

So why did the transports fall? Because yesterday wasn’t really about transportation. It was about rotation.

Investors weren’t selling transports because they suddenly became bearish on the economy. They were selling transports because they were buying something else.

They were buying AI. They were buying semiconductors. They were buying growth. They were buying risk and risk can be defined by Nvidia, Micron, Marvell, Super Micro and the broader AI ecosystem.

One day investors want to play defense, the next day it’s all about the offense. Yesterday was all offense.

And while the transports were lower, I wouldn’t read that as an economic warning sign. If oil remains contained and economic growth remains robust, then lower fuel costs should ultimately become a tailwind for the group. But yesterday- it was all about the growth trade.

Eco data today includes Housing Starts and Building Permits – both expected to be a bit lower, down 2% and down 0/9% respectively – but let’s see what happens.

Overnight – the BoJ raised interest rates by 0.25% - taking their lending rate to 1% - the highest it has been since 1995. Australian bankers left their rates unchanged – as it appears their economy may be weakening…. We will hear from many of the other central banks this week – But let’s talk about the elephant in the room –

Kevin Warsh.

The Fed meets on Wednesday, and let’s be honest—the rate decision itself is about as exciting as watching paint dry. They are expected to do nothing – hold rates steady. But the real event is supposed to be the press conference.

Or is it?

And that’s where things get interesting.

Because Wall Street is acting as if it’s about to sit down with JJ all over again—ready to dissect every word, every pause, every raised eyebrow in search of clues about rate cuts, inflation, growth and the path forward. Yeah! Not happening. Kevy Warsh isn’t Jerome Powell.

In fact, he has spent years criticizing the Fed’s communication strategy. In his view, the team has become way to important, too visible and far too influential in driving market behavior….and I would agree….it was never like that under Greenspan…. Warsh has argued that excessive guidance, endless forecasting, and the Fed’s constant need to explain itself to a media that could twist his words and have actually contributed to policy mistakes and market disruptions…..

Think about that for a moment. The market wants more guidance. Warsh believes the Fed has been giving too much guidance.

The market wants certainty. Warsh seems comfortable with uncertainty.

That’s the TRAP!

Investors are desperate for answers about rate cuts, but the new Chairman may have little interest in providing them. In fact, he has suggested that policymakers should spend less time trying to predict the future and more time responding to actual economic conditions as they unfold. At his confirmation hearing, Warsh even spoke favorably about “messier meetings” where policymakers could have what he called a “good family fight.”

Imagine that. A Fed meeting where members openly disagree. A Fed Chairman who isn’t trying to hand-hold markets. A central bank that provides fewer forecasts and fewer promises. For a generation of investors that want their hands held, who were raised on forward guidance and carefully scripted Fed messaging, this represents a dramatic regime change. This is one of those moments where ‘everyone does NOT get a trophy’.

Which leaves us with an interesting possibility. What if the biggest surprise on Wednesday isn’t what Warsh says but what he doesn’t say?

No roadmap. No promises. No carefully crafted hints about what comes next. Just policy. And if that’s the case, don’t be surprised if the algo’s throw a fit. After all, they have become addicted to guidance, the constant reassurance and a steady stream of clues about the next move.

But for those of us who remember a different Fed—one that spoke less, acted more, and wasn’t trying to manage every tick in the stock market—this might be a welcome return to normal. A Fed that focuses on the economy instead of the market’s emotions. What a concept! It’s game time!

As noted – bonds got bought and yields declined a bit. The 2 yr is now yielding 4.06%, the 10 yr 4.47% and the 30 yr is 4.98%.

Oil fell by as much as 5.5% but ended the day down 4.3% at $81.16. This morning it is down small at $80.69…. the next move driven by more middle east headlines….

Gold is up $112 since Friday’s close all on the idea that inflation will begin to settle down as oil prices retreat….the move higher is not about a geopolitical solution at all…if it were – gold would be lower not higher…the move is a direct result of what investors think about inflation, rates and the message.

European markets are NOT open yet, it’s 6:40 am here. (And I am on vacation!).

US Futures at midnight (est) are up small.

The S&P closed at 7554 up 122 pts. Yesterday’s 175 point gap higher- will at some point need to get filled….maybe not today, but trust me, it will, but until then, we could see us test the all time high at 7620 ish…You know the game plan….stick to the plan, do not get fomo’ized.

Try the champagne chicken

A classic dish, easy to prepare, presents beautifully on the plate on a bed of sautéed spinach will leave your guests wondering - How you did it.

Start with skinless pounded chicken breasts - dredge in seasoned flour - (S&P). After you have dusted all of the breasts set aside.

On medium heat melt 3/4 stick of butter and a splash of olive oil in a large sauté pan. When almost sizzling - yet not burning....add the breasts and sauté for about 4 / 5 mins. At this point - turn the breasts over - add about 1 1/2 cups of champagne and sauté for about 10 mins more.

Next add 3/4 cup of heavy cream (or lite cream if you must), chopped Italian parsley and a bit of rosemary powder and continue cooking until it thickens up.

While this is cooking - sauté some fresh spinach in garlic and oil and then make a bed on each plate. When the chicken is done - transfer the breasts to individual plates and top with the champagne cream sauce.

A nice mixed green salad garnished with cherry tomatoes, red onion & cucumber dressed with a champagne vinaigrette finishes off this meal. Choose a lighter bodied red or even a chilled white to complete the presentation.