Stocks were lower Friday afternoon as Wall Street digested President Donald Trump’s pick of Kevin Warsh to lead the Federal Reserve.
The Dow was down 245 points, or 0.5%. The broader S&P 500 also fell 0.5%, and the tech-heavy Nasdaq Composite slid 0.9%.
Warsh, if confirmed, will take over at the helm of the Fed when Jerome Powell’s term expires in May. The short-term outlook for markets hasn’t changed much.
“Markets will, we think, absorb this announcement and move on after a knee-jerk reaction,” Ajay Rajadhyaksha, global chairman of research at Barclays, said in a note.
“The Fed’s path will not change suddenly,” Rajadhyaksha said. “And (as has been the case this week) Big Tech earnings and data surprises will continue to matter more to investors than a (we believe) mainstream pick for Fed chair.”
As Warsh’s confirmation hearings take place, investors will get a better sense of his priorities as Fed chair.
“Warsh’s testimony will also provide market participants with an opportunity to garner insight into his potential policy priorities and how his approach may differ from that of Powell’s,” Brian Levitt, chief global market strategist at Invesco, said in a note.
“We don’t think Warsh will prove as hawkish as markets seem to expect and his past actions seem to suggest,” Levitt said.
Other items that are top of mind for Wall Street:
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Will Warsh maintain the Fed’s independence in the face of potential pressure from Trump?
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Will Warsh lean more “hawkish” – as he has in the past – or “dovish,” and will he be able to build consensus among other Fed governors?
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Will Warsh push for changes to the Fed’s balance sheet?
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Will there be changes to the Fed’s relationship with the Treasury Department?
“Instead of a focus on lower rates, we believe that Kevin Warsh, if confirmed for the Chair, will focus on his history of advocating for a reduced Fed balance sheet, which may lead to closer cooperation with the Treasury,” Doug Beath, global equity strategist at Wells Fargo Investment Institute, said in a note.
The S&P 500 is up 1.35% this month. Since 1950, when the S&P posted a positive gain in January, it finished the year higher 89% of the time, according to Adam Turnquist, chief technical strategist at LPL Financial.
