Markets Retreat on Warsh Fed Nomination, Rising Yields; Tech and Mining Stocks Lead Declines
Wall Street closed lower Thursday, with major indices retreating as bond yields spiked on news of a potential leadership change at the Federal Reserve. The S&P 500 fell 0.35%, the Dow Jones Industrial Average dropped 0.51%, and the tech-heavy Nasdaq 100 declined 0.58%.
The sell-off gained momentum after President Trump said he would nominate Kevin Warsh, a Fed governor from 2006 to 2011 known for his inflation vigilance, to succeed Chair Jerome Powell in May. Markets interpreted the selection as a signal that the era of aggressive rate cuts might be winding down, pushing the 10-year Treasury yield to a one-week high. The dollar strengthened, while gold prices tumbled.
"The Warsh nomination introduces a hawkish wildcard into the Fed's trajectory," said Michael Chen, a portfolio manager at Horizon Capital Advisors. "His historical focus on inflation risks suggests he may be more reluctant to ease policy aggressively, even as economic data sends mixed signals. This is a recalibration of expectations."
Adding pressure, U.S. producer prices rose more than forecast in December, with the core PPI jumping 0.7% month-over-month. The data provided ammunition for those arguing the Fed's inflation fight isn't over.
However, the session wasn't without bright spots. The January Chicago PMI surged into expansion territory, indicating stronger-than-expected business activity. Furthermore, comments from Fed Governor Christopher Waller struck a dovish tone, suggesting "further easing is needed." Politically, a tentative deal to avert a government shutdown provided some late-session stability.
The fourth-quarter earnings season remained a tailwind, with 77% of S&P 500 companies reporting so far beating estimates. Notable gainers included Deckers Outdoor, which soared over 15% on strong results, and Verizon, up 8% after announcing a massive buyback.
Yet, sector performance was starkly divided. Chipmakers and AI-related stocks sold off sharply, with KLA Corp plunging over 11%. Mining stocks were also hammered as precious metals cratered. PennyMac Financial Services nosedived 36% after a revenue miss.
Overseas, European markets finished higher on solid GDP and employment data, while Asian equities were mixed with China's Shanghai Composite falling nearly 1%.
Market Voices
David Park, Chief Strategist at Clearwater Investments: "This is a classic 'good news is bad news' reaction coupled with a policy uncertainty premium. The economy shows resilience, which ironically makes the Fed's job harder. Warsh is a serious intellectual force, but markets hate uncertainty about the reaction function."
Lisa Moreno, Retail Investor & Finance Blogger: "It's infuriating. The economy is doing okay, companies are making money, and yet the market throws a tantrum because one guy might be slightly less eager to cut rates? It feels like the algos are just looking for any excuse to sell. The overreaction in semiconductors and miners today is completely disconnected from long-term fundamentals."
Arjun Patel, Senior Economist at Brookfield Research: "The market's focus on Warsh's hawkish reputation may be overdone. He served during the Great Financial Crisis and understands the dangers of policy error. The key will be the composition of the Board and the data flow. Today's PPI print certainly gives any new chair reason to be cautious."
Sarah Gibson, Independent Trader: "The volatility is a gift for active traders. The knee-jerk sell-off in quality names like AMD or the miners on macro news creates entry points. The underlying earnings story is still positive. I'm using days like this to scale into my watchlist."