January 18, 2026

My Thoughts on
the Market

Weekly Edition

How did the markets do?

• Stocks had a mixed week, with the S&P 500 hitting new record highs early in the week before pulling back slightly by Friday.
• Bonds struggled a bit as investors became less certain about rate cuts this year.
• Surprisingly, markets showed their resilience despite headlines about investigations and political drama.

What headlines moved the markets?

• The Department of Justice launched a criminal investigation into Fed Chair Jerome Powell.
  • Powell released a video pushing back on the investigation stating that it is political retribution for the Fed not lowering rates as quickly as President Trump has wanted.
  • As concerning as this is, markets actually shrugged it off after not much more than an initial wobble on Monday morning.
• Rate cut expectations for 2026 dropped significantly.
  • Markets now expect one or two rate cuts this year, down from earlier hopes for more aggressive easing.
• Gold hit new all-time highs above record levels.
  • Investors are clearly seeking safe havens from the US Dollar due to all of the political uncertainty.

Quote of the week
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president.” - Fed Chair Jerome Powell

• On 1/9/26, The DoJ notified the Fed that it has opened a criminal investigation into Fed Chair Jerome Powell over his June 2025 testimony to Congress about the Fed's $2.5 billion renovation of its headquarters.
  • Prosecutors are investigating whether Powell gave false or misleading testimony.
• This investigation is part of an escalating conflict between President Trump and the Fed:
  • Rate Cut Pressure: Trump has repeatedly criticized Powell for not cutting interest rates fast enough or far enough in 2025.
  • Personal Attacks: Trump has called Powell incompetent and threatened to fire him on several occasions.
  • Building Controversy: The Fed’s headquarters renovation has become a new angle for leverage, with Trump threatening to sue Powell for cost overruns.
• The investigation represents an unprecedented attack on the Federal Reserve's political independence. For decades, the Fed has operated free from direct political pressure when setting monetary policy.
  • Powell's term ends in May, 2026, and Trump is expected to announce a replacement soon. Powell is expected to remain as an influential Governor on the Fed Board for several more years after his term as Chair ends.
  • Several senators from both parties have said they will oppose any new Fed nominees until this is resolved.
  • This situation is essentially a high-stakes test of whether the Federal Reserve can maintain its independence from political pressure.

Conclusion

• Markets were uncharacteristically unemotional in response to both the Venezuelan capture last week and the Fed investigation this week, indicating that investors may be becoming inured to political uncertainty.
• The DoJ investigation of the Fed may very likely have the opposite effect of President Trump’s desire to lower rates. The Fed may hold rates in defiance of political pressure and there will almost certainly be increased scrutiny on the next Fed Chair nominee to prove a lack of political bias.

Have a nice MLK Day holiday!

Kevin