Prosecutors to Probe Powell, Gold Gallops, Credit Card Cap

Before you made your way to this morning's Market Recon, you may first have noticed that U.S. equity index futures are under some pressure as the zero-dark hours whiz by. That's despite a strong day for equities across Asia and a mixed opening across Europe. You may have also noticed that prices for both gold and silver futures are soaring.

Your net long equity portfolio is going to have to absorb a kidney punch this morning. Why is that? There are actually multiple reasons for the short-term profit taking we are experiencing right now. Headlines across the financial marketplace stretching into mainstream news show that U.S. prosecutors are now investigating Fed Chair Jerome Powell concerning his testimony last summer when asked about the central bank's renovation project.

I read it first at the Wall Street Journal's website, but I believe the New York Times broke the story. The U.S. Attorney's Office in Washington, D.C. has launched a criminal investigation into the Fed Chair based on Powell's testimony before U.S. legislators, on Powell's public statements and on the Fed's spending records. Renovations at the Fed's project to expand upon and modernize the Marriner S. Eccles Building, which was built in 1935 as well as a secondary address on Constitution Avenue, are what is under scrutiny.

These renovations, which broke ground in 2022, are currently estimated to be about $700 million over budget. A 2021 version of the Fed's proposal to renovate describes posh upgrades such as private elevators and private dining rooms for Fed officials as well as water fountains, marble artwork and a rooftop terrace.

For his part, at congressional hearings looking into the matter this past June, Powell denied that very many of these luxurious upgrades ever made it into the final proposal. The U.S. Attorney's Office in D.C. is headed by Jeanine Pirro, who is a former New York State prosecutor, a former Fox News personality and an outspoken ally of Pres. Trump's. In an interview at NBC News on Sunday, the president said that he did not know about any subpoenas sent to the Fed by the Department of Justice and that any criminal investigation would have nothing to do with the highly publicized ongoing dispute between Powell and himself over interest rate policy.

Powell Responds

On Sunday, Fed Chair Jerome Powell recorded a short video for release to the media defending himself and throwing a few stones of his own at the administration. Powell stated: "I have deep respect for the rule of law and for accountability in our democracy. No one— certainly not the chair of the Federal Reserve — is above the law. But this unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure."

Powell dug in at that point: "This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress's oversight role; the Fed through testimony and other public disclosures made every effort to keep Congress informed about the renovation project. Those are pretexts. 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."

Powell wrapped up the video with this statement: "Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people."

Keep in mind that Powell's term as Fed Chair comes to an end on May 15, though his term as member of the central bank's Board of Governors does not expire until Jan. 31, 2028. Though the president can and is expected to replace Powell as the central bank's leader in May, Powell can stick around and impact policy for years to come.

It would be highly unusual for a Fed Chair to not resign from the board once replaced at the leadership position, but these are not normal times. Powell stepping aside would allow the president to nominate one more policy ally to the board, which could be very crucial to getting rates down to a level where the administration would like to see them.

Asked for opinion, I have long believed that Powell has misunderstood the relationship between the neutral rate of interest (which would be neither accommodative nor restrictive) and the Fed Funds Rate. I have been quite public in that opinion. I think the overnight rate should be about a half percentage-point lower than it is. Maybe even three-quarters of a percentage point, with demand for labor ebbing and inflation rapidly receding. I have no idea if there is any meat on the bones as far as this investigation is concerned. How could I?

I do not believe in lavish government spending on luxurious facilities, and I do not know if those facilities were being upgraded in that way. The only Fed building that I have spent any time in over the past few years has been the New York Fed at 33 Liberty St. Even if there were unnecessary upgrades being made to the buildings in question, if the Fed was honest about those upgrades, that raises other questions.

My guess is that we know far from everything and that's the way it's going to be for a bit. In the meantime, the high-speed, keyword reading algorithms that control price discovery across multiple points of sale in the year 2026 quite obviously do not like the Chair of the U.S. central bank being under criminal investigation. Those same algorithms are also now quite clearly worried that Powell might try to make a point in anger and try to stick around well beyond May.

Then, There's This

Late Friday, Pres. Trump called for a one-year 10% cap on credit card interest rates that would begin on Jan. 20. Legislators from both sides of the political aisle have made efforts to address the issue of extremely high credit card interest rates. In fact, in the House of Representatives, New York Rep Alexandria Ocasio-Cortez (progressive liberal, Trump adversary) and Florida Rep. Anna Paulina Luna (conservative, Trump ally) have introduced a bill together that would indeed cap these rates at 10%.

Bloomberg News is reporting that speaking from Air Force One on Sunday evening, the president reinforced what he said on Friday. When asked if rates were not capped at 10% by Jan. 20, Pres. Trump said, “Then they’re in violation of the law. Some of them are charging 28, almost 30%. People don’t know they’re paying 30%. They’re working and have no idea they’re paying 30%.”

The legislative branch of government has not yet passed anything, so I am not quite sure about the "violation" mentioned there. The Bank Policy Institute and Consumer Banking Association released a very measured joint statement in response. The two banking groups, "Share the president’s goal of helping Americans access more affordable credit.” But, and this is a very big but, "Evidence shows that a 10% interest rate cap would reduce credit availability and be devastating for millions of American families and small business owners who rely on and value their credit cards, the very consumers this proposal intends to help.”

Reaction

This news, as much as the news concerning the Fed chair is having an impact on financial stocks ahead of the fourth quarter earnings reporting season, that for the banking sector begins this week. Severely negatively impacted in overnight trade have been the shares of Capital One Financial  (COF)  and American Express  (AXP) . Mastercard  (MA) and Visa  (V)  are both trading lower as well, though not quite as sharply. Large money center banks are also trending lower. JP Morgan Chase  (JPM) , Citigroup  (C) , Bank of America  (BAC)  Wells Fargo  (WFC)  and others are taking their very early Monday morning lumps.

Interestingly, long-time Sarge fave SoFi Technologies  (SOFI)  is trading slightly higher overnight. Remember, this is the Sarge 2026 "stock of the year." Credit card balances only represent a rough 1.1% of SoFi's total loan portfolio. SoFi butters its bread in the personal, student and home loan businesses within its Lending segment.

Business Insider is reporting that in response to the president's proposal, which targets the consumer affordability crisis, SoFi CEO Anthony Noto commented, "If this is enacted—and that's a big if, though part of me hopes it is—we would likely see a significant contraction in industry credit card lending. Credit card issuers simply won't be able to sustain profitability at a 10% rate cap. Consumers, however, will still need access to credit. That creates a large void—one that SoFi personal loans are well positioned to fill."

The Week That Was...

Traders and investors finally had to fight their way through a full week after holidays had shortened the prior two weeks. Readers will recall that traders who live off of a profit and loss and brokers who live off commission do not appreciate federal holidays as much as everyone else. Jingle, jingle. 

Those of us operating without the safety nets of salaries or wages, have to average a certain level of projected revenue per day. Holidays don't help with that situation. They force that daily average higher. Multiple holidays and the light trading volumes associated with those holidays further complicate things. Hence the five-day week was appreciated. 

From the perspective of news flow, last week was a doozy. Traders came into work on Monday morning with U.S. Army special operators having conducted a weekend raid into Venezuela and capturing that nation's dictator, Nicolas Maduro. After that it was off to Las Vegas where CES 2026 opened with keynote addresses made by both Nvidia  (NVDA)  CEO Jensen Huang and Advanced Micro Devices  (AMD)  CEO Lisa Su. 

The rest of the week was primarily focused on job creation. The ADP Employment Report for December landed weaker than some had expected. as did the results of the December employment surveys on Friday. 

Lastly, the administration ordered Fannie Mae and Freddie Mac to begin purchasing up to $200 billion in mortgage-backed debt securities in order to narrow the spreads between the yields paid by these securities and Treasury debt securities. This is being done to reduce mortgage rates and is a proven method of doing just that. This is not a form of quantitative easing as there is no expansion of money supply and no expansion of the monetary base. 

Amid all of that news flow, without a lot of earnings releases to work with, this is how equity markets performed over the past week...- The S&P 500 gained 0.65% on Friday and 1.57% for the week.

- The Nasdaq Composite added 0.81% on Friday and 1.88% for the week.

- The Nasdaq 100 tacked on 1.02% on Friday and 2.22% on the week.

- The Russell 2000 gained 0.78% on Friday and a nifty 4.62% for the week.

- The S&P Small Cap 600 gained 0.78% on Friday and an impressive 4.13% for the week.

- The S&P Midcap 400 gained 0.85% higher on Friday and 3.3% over the week.

- The Dow Transports added 0.7% on Friday and 3.7% for the week.

- The Philly Semis sailed 2.73% higher on Friday to add 3.68% for the week.

- The KBW Bank Index lost 0.39% on Friday but gained 2.12% for the week.

On Friday, nine of the eleven S&P sector SPDR ETFs closed out the session in the green, led by the Materials  (XLB)  and Technology  (XLK) . Health Care  (XLV)  led the losers.

For the week, 10 of the 11 S&P sector SPDR ETFs traded higher, with Consumer Discretionaries  (XLY)  out in front, followed by the Materials. The Utilities  (XLU)  were the lone sector SPDR to close out the week in the red. The top performing stocks in the S&P 500 for the week were SanDisk  (SNDK) , Builders FirstSource  (BLDR)  and Intel  (INTC) .

The Chart​

​Readers will see that on Friday, the S&P 500 appeared to have broken out beyond and held the pivot created by our Ascending Triangle pattern of bullish trend continuance. "Huzzah" screamed the crowd. Then one cried out... "But Sarge, was it a "Day of Bullish Confirmation." Excellent question, my young student. Class, the answer in no, why is that? 

Lack of increased trading volume? Very good. Who said that? You in the back. Great answer. Now, go get a haircut. Readers will see on this chart that trading volume across the membership of the S&P 500 has decreased every single day for four days from the day prior. That does diminish any technical impact of last week's rally. Oh, your trades, good or bad, still stand, but we would need to see a surge in share prices on increased volume to actually wake up the children and jump for joy. 

Tell us more, mighty leader. Gladly, my young Padawan. To truly learn the way of the Jedi, you must learn to follow both Relative Strength and daily moving average convergence divergances. Readers will see here that for the S&P 500, relative strength is better than neutral but is nowhere near entering into a technically overbought state. That's still bullish. 

Below the chart, we will see that within the daily MACD, the histogram of the nine-day exponential moving average is indeed in positive territory. That's a short-term bullish signal. Readers will also see both the 12-day EMA and 26-day EMA also in positive territory with that 12-day line riding above the 26-day line. Again, short to medium-term bullish. A concern would be if the early morning weakness today drags the 12-day (black line) below the 26-day (gold line). The bulls don't want to see that. On that note, for those about to rock, as always, we salute you.

Earnings 

As of Jan. 9, according to FactSet, for the fourth quarter, Wall Street is projecting year-over-year earnings growth for the S&P 500 of 8.3%, in line with where this number was weeks ago. Wall Street also sees revenue growth of 7.7%, up from 7.6% ahead of the holidays. For the full year (2025), the street now sees earnings growth of 12.4% (up from 12.3%) on revenue growth of 7.0%. 

At the moment, Technology at earnings growth of 25.9% is the only sector projected to experience double-digit bottom line growth for the fourth quarter. Three sectors (discretionaries, energy and the industrials) are projected to suffer a year-over-year earnings contraction, while two other sectors are seen growing earnings by less than 1%.

Valuation

Still using data provided by FactSet, the S&P 500 ended last week trading at 22.2-times 12 months' forward-looking earnings, up from 21.8 times three weeks ago. This is well above the five-year average of 20.0 times for the index as well as well above its ten-year average of 18.7 times.

The S&P 500 also ended last week trading at 28.5-times trailing 12 months' earnings, up from 27.6-times three week ago. That also stands well above the five-year (25.0 times) and ten-year (23.0 times) averages for the index.

Nine of the 11 sectors are still trading above their five-year average valuations, led by consumer discretionaries (29.7 times) and tech (26.3 times). Only the utilities (at 17.5 times) and the REITs (at 17.2 times) are not historically overvalued relative to their five-year averages.

The GDP Game

Last week, the Atlanta Fed revised their GDPNow model's estimate for Q4 economic growth all the way up to 5.1% from 3.0% (q/q, SAAR) after the October U.S. trade balance printed at far better levels than expected.

Among other regional central bank district branches running close to real-time Q4 GDP models, the New York Fed revised their estimate up to growth of 2.62% from 2.07%. The Cleveland Fed left their model unrevised at growth of 2.85%. The St. Louis Fed, which has missed the mark quite badly so far in 2025, did revise their Q4 model, but sharply downward from 1.12% to -0.34%. One of these things is not like the others.

Fed Funds Futures 

Fed Funds futures trading in Chicago are now pricing in just a 5% probability for a quarter-point rate cut on Jan. 28 when the FOMC next meets on policy, down from 17% last week at this time. As we know, the FOMC looks different in 2026 as Boston, Chicago, St. Louis and Kansas City have lost policy voting rights as part of the Fed's regular annual rotation. Cleveland, Philadelphia, Dallas and Minneapolis have now gained policy voting rights for the coming year. At present, there are now a half points worth of additional rate cuts fully priced in (67% chance, down from 75%) for all of calendar 2026.

On The Docket...

The week ahead will be quite active. Not only will the macroeconomic data be coming at investors hot and heavy, so will earnings. Most of the large US banks will report next week, kicking off the Q4 earnings season.

.... The Federal Reserve will awaken this week in numbers after a holiday season slumber where we hardly heard from this crew at all for several weeks. Later today, we'll hear from Atlanta Fed Pres Raphael Bostic, Richmond Fed Pres Tom Barkin and New York Fed Pres John Williams. Of those only Williams is a 2026 voting member of the FOMC. 

I have fifteen public appearances to be made by Fed officials on my radar for the week right now. Of those, the headliners are Fed Gov Stephen Miran on Wednesday and Fed Gov Michelle Bowman on Friday. The Fed will also release the latest edition of its Beige Book on Wednesday afternoon.

.... The macroeconomic calendar will be very active this week. December consumer price index will hit the tape on Tuesday along with New Home Sales for both September and October. Wednesday brings producer price index data for October and November as well as November retail sales. Come Thursday, attention will be on the Empire State and Philadelphia Fed Manufacturing Surveys. Lastly, on Friday, the Fed will release data covering December Industrial Production and Capacity Utilization.

.... The earnings calendar will start to perk up this week. On Tuesday, we'll hear from Bank of New York Mellon  (BK) , Delta Air Lines  (DAL) , and JP Morgan Chase. Come Wednesday, Bank of America  (BAC) , Citigroup and Wells Fargo  (WFC)  will step to the plate. Blackrock  (BLK) , Goldman Sachs  (GS)  and Morgan Stanley  (MS)  will report on Thursday morning, followed by JB Hunt  (JBHT)  on Thursday evening. PNC Financial  (PNC)  will post their digits on Friday morning.

Economics 

(All Times Eastern)

1:00 p.m. - Ten Year note Auction: $39B.

The Fed 

(All Times Eastern)

12:30 p.m.- Speaker: Atlanta Fed Pres. Raphael Bostic.

12:45 - Speaker: Richmond Fed Pres. Tom Barkin.  

6:00 p.m. - Speaker: New York Fed Pres. John Williams.

Today's Earnings Highlights

(Consensus EPS Expectations)

No significant quarterly earnings scheduled.

At the time of publication, Guilfoyle was long NVDA, AMD, INTC, JPM, SOFI equity.