Trump announces new Fed Chair

President Trump announced Kevin Warsh as his nominee to succeed Jerome Powell as Chair of the Federal Reserve. Markets have been concerned that his other leading candidate, Kevin Hassett, would be too aligned with the administration; hence, the choice of Warsh was likely a way to project Federal Reserve independence. Treasury yields and the U.S. dollar rallied modestly as traders repriced rate expectations to a more hawkish or balanced policy tilt. Gold and silver reacted extremely negatively as Warsh is perceived as less likely to continue lowering interest rates. His nomination still requires Senate confirmation and will likely face political pushback.

• Warsh served as a Fed Governor from 2006 to 2011, having been appointed by George W Bush
• Since leaving the Fed, he has been an outspoken critic of the Fed’s easy monetary policy
• More recently, he has discussed shrinking the Fed’s balance sheet
• His public views are not consistent with the President’s wishes for an “easier” Fed, hence, he was not an obvious choice
• He is, however, married to Jane Lauder, a granddaughter of Estee Lauder
• Her father, Ronald Lauder, has been a long-time supporter of Donald Trump
• It will be interesting to see if the new Fed Chair is willing to go against the wishes of the current administration if the economic situation warrants so
• Ultimately, given the amount of US government outstanding debt, the Federal Reserve may not have as much flexibility as before
• Regardless of who the new Chair is, we expect the Federal Reserve may have to accept a slightly higher level of inflation than previously

Gold and silver markets experience severe volatility

After breaking records earlier this month, with gold topping ~$5,500/oz and silver trading above $120/oz, precious metals reversed sharply this week. Triggered by the early-morning announcement of a more “hawkish” Fed Chair nominee, gold prices fell by around 7–8%, while silver plunged by ~15–17%. The losses continued throughout the Friday trading session, with silver losing as much as ~35% and gold pulling back as much as ~15% before recovering. Despite the pullback, January still looks set to finish as one of the best months for gold and silver in decades, with year-to-date gains remaining significant. The sheer amplitude of the move underscores how quickly speculative pressure can unwind in macro-linked commodities.

• The downward price action of gold and silver on the last trading day of the month was one of the largest on record
• However, given the parabolic rise of both metals over the past year, it should not have been unexpected
• We are likely to see both metals consolidate over the coming weeks and months before we can determine the forward trend
• Ultimately, the price of both is a function of supply and demand
• As it relates to gold, if there is continued demand by Central Banks, as they look to diversify away from the US dollar, the uptrend should continue
• Silver, on the other hand, has many industrial uses that are in high demand (data centers, solar panels, electric vehicles, etc.)
• Silver has experienced a mining deficit for several years, and prices may continue to be supported by the imbalance

Stock market divergence continues

Equity performance in early 2026 highlights a clear divergence across market segments. While the S&P 500’s year-to-date return is modest, small-cap stocks have outpaced large caps; up ~5% vs ~1-2% for broader benchmarks. Early sector returns show semiconductors, energy, and materials outperforming, while healthcare, financials, and software are all down on the year. The equal-weighted S&P 500 has outperformed the market-cap weighted version, signaling broader participation beyond mega-cap tech. This fragmentation reflects a shift from narrow concentration toward a more rotational market dynamic.

• The divergence in sector performance was evident last year and has continued in the new year
• We would not be surprised to see this dynamic continue as the year goes on
• The most stunning divergence thus far has been with software and semiconductor stocks
• Software stocks, as measured by IGV, are down over 14% to begin the year, while semiconductor stocks, as measured by SMH, are up over 12%
• It is likely that selling in the software sector gets overdone and will selectively create bargains
• Overall, this type of market environment is more conducive to stock-picking

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