February 8, 2026

My Thoughts on
the Market

Weekly Edition

How did the markets do?

• Stocks had a wild ride this week, starting with a mid-week slump before rebounding strongly on Friday.
• Bonds moved higher as investors digested mixed signals from the Fed about future rate cuts.

What headlines moved the markets?

• Although it’s still early in the year, core inflation is expected to be at 3% in 2026, proving stickier than many had hoped.
  • The Fed’s target of 2% has been elusive and is the primary rationale for not cutting rates further. Typically interest rate cuts create inflationary pressure as folks tend to borrow more at lower rates.
  • Remember that inflation is too many dollars chasing too few goods. An increase in borrowing means an increase in the amount of dollars flowing through the economy.
  • The other side of the equation, supply of goods, has so far remained steady, however the Fed expects tariffs to cause consumers to purchase less.
• Meanwhile, San Francisco Fed President Mary Daly warned that the job market feels "precarious" and signaled room for rate cuts.
  • While unemployment remains below the target threshold of 5%, rising layoff announcements and fewer job openings are concerning trends.
  • The Fed has found itself between a rock and a hard place - rising unemployment with tenacious inflation, which can lead to the dreaded stagflation scenario.
• Earnings season continued with mixed results.
  • Stock prices saw selloffs despite positive earnings due to AI investment skepticism and cautious future outlooks due to tariff uncertainty.

Quote of the week
“He will go down as one of the great Fed chairmen, maybe the best. On top of everything else, he is central casting and will never let you down.” - President Trump commenting on Kevin Warsh, his nominee for the next Fed Chair position.

• After much speculation and a veritable Fed version of The Apprentice, President Trump announced Kevin Warsh as his nominee to replace Jerome Powell as Fed Chair once his term ends in May. Here is a bit about Kevin’s background, the reason he was chosen over the other candidates, and the market’s reaction:
• Background:
  • Kevin went to Stanford for his undergrad degree and then earned his JD from Harvard in 1995.
  • After college he went to Wall Street and worked at both Morgan Stanley and Goldman Sachs as an investment banker.
  • During the early 2000s he served as an economic advisor to George W. Bush and later was appointed to the Fed Board of Governors in 2006 at age 35, the youngest member in the Fed’s history. He served on the Fed until 2011 and worked closely with Ben Bernanke during the 2008 Financial Crisis.
• Why Trump nominated him:
  • His Wall Street background and prior experience at the Fed gives credibility with the markets. He also has a known track record of a more conservative, traditional approach to monetary policy than the other candidates. Although he is considered an inflation hawk, he has expressed an interest in exploring other methods of controlling monetary policy beyond keeping interest rates high, which appeals to Trump’s desire to lower rates.
  • Blowback from the investigation into Powell and perceived political pressure on the Fed will make any nominee subject to additional scrutiny by the Senate Banking Committee, whose consent is required in order to present the nominee to the Senate. Kevin Warsh is seen as a less controversial choice than some of the other contenders, and is more likely to get approval from the Senate. He is not without scandal however, as he, like many of the other wealthy businessmen that Trump surrounds himself with, was mentioned as a guest of Jeffrey Epstein’s in the most recent release of files from the DoJ.
  • Trump places a significant amount of importance on the “look” of the people he employs in his cabinet and key positions. He stated that one of the primary reasons for nominating Kevin Warsh was that he was “straight from central casting…looks don't mean anything, but he's got the look". Perhaps if Kevin Hassett, the other frontrunner for the Fed Chair nomination, had spent less time on TV and more time in the gym, he might have gotten the nod instead.
• The market’s reaction:
  • Stocks reacted mildly positively to the announcement. Stocks turned slightly upward after a prior selloff due to disappointing company earnings calls, indicating a moderately good response to the news.
  • The Treasury bond yield curve steepened as traders reacted to the expectation of a change in policy from Powell’s tenure. Short term bond rates edged downward and long term rates rose, in-line with expectations that Warsh will cut rates in the near term and potentially raise them later.
  • Gold and Silver plunged down over 30%, in one of the greatest single day price depreciations in history. In turn the dollar strengthened, reversing the trend of investors shifting from dollars to precious metals as a hedge against inflation. Investors sent a clear message that they expect the dollar to strengthen during Warsh’s term as Fed Chair.

Conclusion

• Inflation and unemployment are still not moving in the direction that the Fed would like them to. Although the numbers themselves aren’t worrisome, the trend and the inefficacy of Fed policy to reverse it are a concern. Expect more division among Fed Governors as this persists.
• Company Q4 earnings calls have been a mixed bag with tech stocks struggling to maintain the upward momentum of 2025. Fortunately, the selloff in tech has led to rallies in other sectors and the market as a whole remains positive for the year.
• Kevin Warsh is generally seen as the least risky of the Fed Chair potential nominees and is expected to maintain Fed independence from political pressure. He is considered the most experienced and mainstream of the candidates and will likely receive Senate approval.

Enjoy the Olympics!

Kevin