Bessent Goes to Bat for Trump's Federal Reserve Pick
Political issues have added to the pressure being felt by the stock market.
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The Russell 2000 small-cap index (IWM) and the Nasdaq 100 big-cap technology index (QQQ) led the market lower on Friday. It was a messy and chaotic session, sparked by the naming of Kevin Warsh to head the Federal Reserve.
The Warsh Factor
Some folks are concerned about Warsh’s history as a hawk, but U.S. Treasury Secretary Scott Bessent addressed the concerns with this comment:
“In reality, Warsh is clearly aligned with President Trump’s productive-capital, supply-side agenda, prioritizing investment, productivity, and private-sector credit creation over financial engineering. Advocating a supply-side agenda gets labeled ‘hawkish’ by Wall Street, but it’s really an anti-Keynesian stance, not a reflexive preference for tight money. The exhaustive research completed by President Trump on the next Fed chair will be spun by pundits as Warsh being a ‘second-best’ choice. That analysis is pure folly and is representative of the Trump Derangement Syndrome that still grips much of Wall Street commentary.”
Warsh was a convenient excuse for the selling, but there is much more going on here.
AI Anxiety and Valuation Drifts
While Apple (AAPL) had a solid report, it did nothing to offset the AI concerns raised by Microsoft’s (MSFT) earnings on Wednesday night. The software sector remained under heavy pressure as Palantir Technologies (PLTR) fell another 4%.
Expensive, high-growth technology names were hit the hardest, which was reflected in the Innovator IBD 50 ETF, down a whopping 6.85%. Small caps struggled as well with a loss of 1.5%, but the Magnificent Seven held up fairly well with a loss of 0.5% due to internal rotation.
Geopolitical Heat and Metal Meltdowns
Political issues added to the pressure. There is likely to be a partial government shutdown due to disagreements over the funding of ICE, and the military is moving a large armada near Iran.
A very sharp reversal in gold, silver and precious metals after a record rally contributed to the atmosphere of a market that is out of control. A parabolic move in an asset class generally regarded as a safe haven in times of chaos is not comforting.
Finding the Bottom
In a different environment, none of these issues would be a trigger for this level of selling. However, the market was ripe for a reset and profit-taking as valuations in technology became stretched and questions about profitability started to intensify.
While this is painful action in many places, it was needed and ultimately will be healthy as it shakes out some of the excess and creates new opportunities. Typically, action like this is top-down, and many good stocks are sold along with the overvalued.
Eventually, the stock pickers will step up and find the bargains, but the transitional period from index and ETF selling to stock picking can be difficult. I do not believe this is the start of a major downtrend or a bear market, but there is some serious corrective action taking place, and it will take time for support levels to form. As always, I’m optimistic about the opportunities being created.
Have a great weekend. I’ll see you on Monday.
At the time of publication, DePorre had no positions in any securities mentioned.
