It appears that President Trump wants Kevin Hassett to remain in his role at the White House. With the supposed frontrunner to replace Powell out of the running, the nomination now seems open to Kevin Warsh. As the graph below shows, Polymarket bettors are assigning 60% odds that Kevin Warsh will be nominated.
Given this, we must ask, what does Kevin Warsh bring to the Fed?
Most importantly, Kevin Warsh, unlike Hassett, is not an obvious policy dove. He is an outspoken critic of QE, not because it doesn’t stabilize financial markets when the Fed wants it to, but because it distorts pricing and encourages excessive leverage and risk-taking. A Warsh-led Fed would likely emphasize a smaller balance sheet, clearer exit rules for emergency facilities, and formulaic policy decisions based on real economic outcomes rather than financial-market reflexivity.
His ideals would be healthier for markets in the long run, but could be uncomfortable initially for investors who have flourished under many rounds of QE.
Rather than responding to every bout of market stress with , QE, or new lending facilities, a Kevin Warsh Fed would likely tolerate more volatility as the cost of restoring credibility.
In practical terms, that implies tighter financial conditions, fewer “mid-cycle adjustments,” and a higher bar for intervention. Assuming this analysis proves true, investors would lose a dependable tailwind, and valuation—not liquidity narratives—would regain its role as the primary driver of long-term returns. Accordingly, active investment strategies may once again prove more rewarding than passive strategies.
Size Matters
The markets have sent a clear message over the last few weeks: small and mid-caps are investor favorites while large and mega-caps are, for the first time in a long time, out of favor. While it’s tempting to sell the large megacap stocks and buy into the current fad, we offer caution.
Note below that the absolute scores for the small and mid-cap sectors are grossly overbought, and their relative scores are similarly very overbought. Conversely, the is fairly valued on an absolute basis but is decently oversold relative to the market.
2026 may be the year that small and mid-caps finally outperform larger stocks, but we caution that the current rotation into these sectors is getting very overdone. We advise waiting for a counter rotation before making any significant portfolio changes.
Natural Gas Prices Surge
The latest weekly forecast calls for an Arctic airmass to cover the Midwest and the Northeast. As a result, prices jumped by over 25% on Tuesday’s open, making it the 3rd largest daily gain in history. Meteorologists estimate that temperatures will be up to 25 degrees below average across the Northeast and Midwest of the US over the coming ten days.
As we share below, the price of natural gas is up sharply but well below the $5.50 peak set in early December. Natural gas prices tend to be heavily correlated with weather forecasts. Thus, given the severity of the cold, the surge is not surprising. The question will be what the longer-range forecasts for February look like and what impact they will have on prices.