Peace-Talk Concerns, Warsh Comments Weigh on Overbought Market

You probably noticed the market started on a positive note but has since given up those gains and moved lower. There are two drivers behind this.

Concerns over U.S.-Iran negotiations breaking down are rising following a report from The New York Times that Vice President JD Vance’s trip to Pakistan was suspended because Tehran did not respond to American negotiating positions. The Times goes on to report that “Iran, for its part, said it had not yet decided whether to resume talks with the United States.”

That is lifting the likelihood of renewed conflict between the U.S. and Iran, following comments from President Trump that he is “highly unlikely” to extend the truce past Wednesday if no deal is reached. Earlier today, the president said that he expects “to be bombing." There are also reports that Israel is prepping for the possibility of resuming military operations against Iran as the end of the U.S.-Iran ceasefire draws near.

The other factor that is arguably weighing on the market are comments by Fed Chair nominee Kevin Warsh during today’s confirmation hearing. Warsh pushed back on concerns he would bend to Trump’s demands for lower interest rates and commented that "The trajectory of inflation is improving, but there's more work to do."

That would suggest Warsh is not poised to deliver the slam-dunk rate cuts Trump is calling for should he get the Fed Chair slot come May. Remember, though, earlier this morning, Trump indicated he is not inclined to back off the Justice Department probe on the Fed and current Fed Chair Powell. That suggests a showdown between the president, Senator Thom Tillis of North Carolina, and the Fed. We see that as another layer of uncertainty in the mix.

The nominee also argued the Fed should focus on underlying inflation and pointed to "trimmed mean" measures that strip out outliers and show that inflation has been running closer to the Fed's 2% target. He also disputed the view, held by several current Fed officials, that tariffs are driving up recent measures of inflation and called for a “new framework” for dealing with persistent inflation. As you might have guessed, Warsh provided few specifics and avoided answering questions about the near-term path of interest rates.

A new framework and no comments on potential monetary policy moves bring another scoop of uncertainty.

We’ll stick with our inverse ETF positions and remain vigilant should developments over the coming days warrant a change.

At the time of publications, TheStreet Pro Portfolio was long SH, PSQ and RWM.