U.S. stocks maintained their losses during Friday's late trading session in New York. President Donald Trump nominated Kevin Warsh to replace Jerome Powell as Chair of the Federal Reserve. The market anticipates that Warsh will ultimately not support aggressive interest rate cuts, thus maintaining the expectation for only two rate reductions this year. Prices for gold and silver plummeted.
The Dow Jones Industrial Average fell by 206.23 points, or 0.42%, to close at 48,865.33; the Nasdaq Composite dropped 204.69 points, or 0.86%, settling at 23,480.43; and the S&P 500 index declined by 30.03 points, or 0.43%, finishing the day at 6,938.98. Following President Trump's announcement nominating Kevin Warsh for Federal Reserve Chair, international gold prices fell sharply on Friday, on track for their largest single-day drop since 1983; international silver prices crashed by nearly 30%, likely marking their worst single-day performance in history. Spot gold was quoted at $4,883.62 per ounce, down 9.5%, after the commodity had just hit a record peak of $5,594.82 on Thursday. It subsequently rebounded above $4,900 per ounce, recovering over $200 from the day's low. The U.S. gold futures contract for February delivery settled at $4,745.10 per ounce, marking an 11.4% decline. Analysts attributed the selling wave to profit-taking, a trend that also exerted pressure on other precious metal varieties. Suki Cooper, Global Head of Commodities Research at Standard Chartered, stated that a market correction was already overdue, and the trigger for this sell-off was likely a combination of multiple factors, including both the announcement of the Fed Chair nominee and broader fund flow dynamics. She added, "Whether looking at the dollar's trajectory or expectations for real yields, these factors collectively served as the catalyst for profit-taking." Trump Nominates Warsh for Fed Chair President Trump announced on Friday his intention to nominate Kevin Warsh as the next Chair of the Federal Reserve. The market views this candidate as a relatively hawkish choice. Following the news, the U.S. dollar pared some gains, and the U.S. Treasury yield curve steepened. Trump posted on his Truth Social platform, "I have known Kevin for a long time, and without question, he will be one of the great Fed Chairs, perhaps the best." Analysis suggests that Warsh would likely struggle to deliver on the significant interest rate cuts demanded by Trump. Other Fed officials are already skeptical about the rationale for cutting rates; if Warsh pushes aggressively for cuts, he may find it difficult to persuade his colleagues to concur. Such a move could also cause him to lose credibility in financial markets, and, somewhat paradoxically, might end up pushing higher the long-term interest rates that are more critical for the real economy. Warsh's appointment ultimately rests with the U.S. Senate, as his nomination requires confirmation by a Senate vote. Given that Democrats and even some Republicans have expressed concerns about the future independence of the Fed, this confirmation process is likely to provoke intense debate; these concerns are further heightened by the Trump administration's Justice Department initiating an investigation into current Fed Chair Jerome Powell (the investigation concerns the Fed headquarters renovation project). Some U.S. politicians also oppose Trump's nomination of Warsh. Senator Elizabeth Warren, the Democratic ranking member on the Senate Banking Committee, called the nomination "the latest step in Trump's attempt to seize control of the Federal Reserve." Warren also urged Republican colleagues to step forward and defend the central bank's independence. Republican Senator Thom Tillis stated that he would continue to oppose the confirmation of any Fed nominee until the Justice Department's investigation into Chair Powell is resolved. Tillis posted on the X platform, "Kevin Warsh is a qualified nominee with deep monetary policy expertise, however, the Justice Department continues a criminal investigation into Chair Powell based on committee testimony that no reasonable person could interpret as showing criminal intent," adding, "Protecting the Fed's independence from political interference or legal coercion is a non-negotiable principle." Market Questions Abound Regarding Future Fed Policy Direction Warsh, a former Federal Reserve Governor, was one of four final candidates on Trump's shortlist for Fed Chair and had visited the White House on Thursday. Long perceived as an inflation hawk, Warsh frequently emphasized the risks of rising prices during the financial crisis, while other policymakers focused on economic growth. However, he has recently publicly advocated for lower borrowing costs, aligning with Trump's stance, which has generated significant market uncertainty about his future policy direction. John Briggs, Head of US Rates Strategy at Natixis, said, "Intuitively, his hawkish credentials are stronger than others, but we believe that in this policy cycle, he would seek to lower rates towards the 3% level." Mark Dowding, Chief Investment Officer at RBC BlueBay Asset Management, noted that even compared to others on the candidate shortlist, while Warsh is seen as relatively hawkish, the market generally believes "he would find justification for a dovish policy stance," and therefore "futures markets are still pricing in two rate cuts." Warsh has historically opposed the Fed maintaining a large balance sheet, which is another core issue market participants are watching closely—investors are eager to know how the candidate would manage the Fed's $6.6 trillion asset portfolio. The key debate centers on whether the Fed should continue buying short-term Treasuries, keeping the balance sheet at its current size, or take steps to withdraw more liquidity from the market. Amid current market concerns about the unpredictability of U.S. policymaking, unsustainable large fiscal deficits, and political interference in central bank policy, the signal of a return to a more traditional candidate for Fed Chair emerges as markets are under pressure. Warsh's potential appointment might alleviate concerns about Fed independence, given his prior experience as a Fed Governor and his track record of being tough on inflation. Although he might initially push for lower rates as Trump desires, financial markets perceive that he would not always follow the President's directives and could maintain the credibility of monetary policy. Jay Woods, Chief Market Strategist at Freedom Capital Markets, stated, "The market shouldn't be overly affected by this news. Even though he has criticized Powell for being too slow to cut rates, he should understand the importance of Fed independence." Gold futures fell over 4%, while contracts linked to silver plunged 12%. Despite the declines, gold and silver have still gained 80% and 209%, respectively, over the past year. Treasury yields held steady following Warsh's nomination, another sign that Wall Street viewed Trump's pick favorably. U.S. Corporate Earnings The market is also assessing the recent flurry of tech earnings reports. After the close on Thursday, Apple reported fiscal first-quarter profit and revenue that exceeded expectations, boosted by a significant jump in iPhone sales. The data storage stock SanDisk surged due to strong earnings guidance. KLA fell sharply due to weak non-GAAP gross margin guidance for its fiscal third quarter. Angelo Kourkafas, Senior Global Investment Strategist at Edward Jones, said, "This week brought the first wave of major tech earnings, with investors focusing on results, guidance, and AI spending as a key market driver... We believe a clear theme is emerging." He added, "Companies are increasing AI-related infrastructure spending, and the market is rewarding those able to translate these investments into profits. Companies lacking a clear monetization strategy are facing more scrutiny." He further noted that although the tech sector is still expected to deliver strong profit growth, its pace is slowing compared to previous quarters, while other sectors are accelerating. Kourkafas stated this development supports "what we see as a key theme for the year: the broadening of market leadership." Economic Data U.S. wholesale inflation for December exceeded expectations, reflecting rising service costs. According to data released Friday by the Bureau of Labor Statistics, the Producer Price Index (PPI) increased by 0.5%, following a 0.2% rise the prior month. Excluding food and energy, the core PPI rose by 0.7%.
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