This four-trading-day week has brought about plenty of changes in our world. On the one hand, geopolitical risk in the Strait of Hormuz has significantly decreased; on the other hand, new Federal Reserve Chair Kevin Warsh has demonstrated his conviction to follow through on his promises, bringing potentially significant changes to the Federal Reserve.
As of Thursday, an interim ceasefire framework had been agreed upon between the U.S. and Iran, lifting the U.S. blockade, temporarily allowing toll-free passage of commercial vessels, and ending hostilities on all fronts, including in Lebanon. Brent crude oil prices dropped significantly to just below $80 per barrel.
The new Fed Chair, Kevin Warsh, has been signaling his intention to reduce the Federal Reserve’s footprint in financial markets by reducing the amount of forward guidance and shrinking its balance sheet. Wednesday’s press conference illustrated what that approach will look like for the first time, as forward guidance was removed from the Fed statement and Warsh did not participate in producing the dot plot, a tool used to communicate the future interest rate outlook. Furthermore, Warsh stated that his Fed is committed to stabilizing prices, providing a hawkish tilt.
Stocks posted gains, and the yield curve flattened. The Dow and the S&P 500 gained 0.74% and 0.90%, respectively. Both indexes are more diversified than the NASDAQ, which gained 2.43% due to its heavy concentration in the technology sector. The technology sector gained 3.61%, followed by industrials with a gain of nearly 3%. This performance signaled that investors were once again piling into AI and AI-related themes this week.
While the front end of the yield curve—specifically the one-year and two-year yields—rose significantly in anticipation of potentially two rate hikes, the five-year yield rose only two basis points, while the 10-year yield actually declined by three basis points as investors perceived much lower inflation risks. The dollar strengthened, and gold prices stabilized.
Next week, an important inflation gauge will be released, which could shed more light on future monetary policy. Adams Wealth Advisors wishes you an enjoyable weekend.