The market is cautious today, mostly over waiting to hear the tone that the new Fed Kevin Warsh will be bringing to the table later today. History says a new Fed chair often brings volatility to the stock market. No one expects a change today, but his views on inflation, employment, AI, and geopolitical risks will carry a lot of weight.
No one forgets that Warsh is Trump’s pick for the position and that Trump is very clear that he thinks the U.S. should have the lowest rates of any country. Warsh will strive to establish his independence from political influence. Expect a notable reaction to his comments today if they are perceived to have either an especially dovish or hawkish bias. His plans on shrinking the Fed’s balance sheet will also be of high interest.
The memo of understanding (MOU) between the US and Iran, scheduled to be signed on Friday, when the market will be closed, has yet to be fully disclosed. The wild card in apparent agreement is to have Israel cease its attacks on Hezbollah in Lebanon, which if violated, could derail the ceasefire.
While the energy market is trading like the deal is done, with trading below $75/bbl overnight, today it jumped to above $77 on the uncertainties of how workable the ceasefire may turn out to be. Even if things work out as hoped, reserves of and distillates have been run down to decades-low levels and refilling them will keep demand above average for many months.
Interest rates are starting to rise modestly, while tech is still positive on the strength of a rebound in semiconductors and financial services and industrials are firmly in the green. All this can change depending on what Warsh has to say. The trend remains positive, and the Iran relief rally has yet to be fully felt, pending the consensus that the agreement is workable on a long-term basis.