The S&P 500 touched 7,000 for the first time on Wednesday morning before volatility took over. Microsoft, Tesla, and Meta Platforms all experienced huge price swings following their quarterly earnings reports. Gold & silver whipsawed wildly throughout the week. And we got the announcement that Kevin Warsh will be nominated as the next chair of the Federal Reserve. The markets continue to experience a wide range of sector-level returns as 2026’s market rotation deepens.
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Market Moves
Weekly Market Snapshot:
- S&P 500: +0.3% – a relatively modest gain for large-cap stocks hides a lot of volatility building up in certain sectors underneath the surface.
- Nasdaq 100: +0.0% – the tech-heavy index continues to be an average performer in 2026 as investors check out value and defensive stocks instead.
- Russell 2000: -2.1% – the strong rally that kicked off the year is facing a reversal; higher volatility tends to hit small-caps harder than most.
- VIX: 17.5 – volatility levels calmed towards the end of the week, but the index nearly hit 20 at one point for only the second time since Thanksgiving.
- Gold: -2.5% – this was up 12% on the week by early Thursday, but a huge volatility spike in the metals market erased those gains for gold, silver, and copper by the end of the week.
- 10-Year Treasury Yield: 4.24% – even though there was wild volatility in commodities and the VIX briefly shot higher, investors still don’t seem terribly interested in using Treasuries as a safe haven.
Drivers:
The Fed held rates steady, which was expected, and the market had little reaction. The parabolic rise and crash in precious metals is creating some instability, but mega-cap tech earnings are what drove market action this week. The market increasingly wants to see results from all of that AI spending. Meta was able to deliver those results in the recent quarter, Microsoft showed a slowdown, and both stocks reacted violently. Fundamentals are looking like they’re slowly starting to matter more and more.
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Economic Highlights
A couple of the notable themes that stood out this week:
The Fed Holds Rates Steady & Doesn’t Deliver Any Surprises
The market had been pricing in almost no change of a rate move from the Fed and that’s exactly what it delivered. For the fifth straight meeting, the decision was not reached by consensus, as Governors Miran and Waller both voted for a quarter-point move.1 We haven’t seen this kind of lengthy disagreement within the Fed board since 2019 when they were struggling to figure out how to properly resume normal policy conditions.
The other thing that Jerome Powell didn’t do was show any indication that the Fed was in any hurry to lower rates. In his statement, he referred to inflation as “elevated” but the unemployment rate as showing “some signs of stabilization”. Given that the jobless rate is still at 4.4%, neither of these statements taken in isolation indicates that the Fed is prepared to be more accommodative. According to the futures market, expectations for the Fed Funds rate by the end of 2026 were little changed. It’s still pricing in two rate cuts this year with the first likely to come at the June meeting.2
The market has typically rallied around the idea of lower rates. Without that, stocks may have a tougher time moving higher.
…But The Fed Gets A New Leader
Months of speculation finally ended as President Trump announced the nomination of Kevin Warsh as the next Federal Reserve chair.3 It’s modestly surprising in that it’s a very conventional pick for the post. Warsh has spent the past 20 years at the Fed and was once under consideration for Secretary of the Treasury.
Part of the market’s volatility this past week stems from investors trying to figure out what kind of Fed leader he’ll be. In the past, he was very much for keeping inflation under control. That would support the idea that, like Powell, he’s not in a rush to cut rates and could keep policy conditions relatively the same after the transition. However, in a recent Wall Street Journal column, he criticized the Fed referring to it as “one of the main obstacles to the U.S. economy”.4 Trump also said about Warsh recently that “he thinks you have to lower interest rates”.5 That’s unquestionably what Trump wants. We’ll see if Warsh will follow through on the White House’s demands.
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Consumer Confidence Hits A 12-Year Low
Consumer confidence levels continue to hit fresh multi-year lows. The January reading slipped all the way to 84.5, which would mark its lowest level since 2014.6
While some market sentiment readings have shown modest improvement in recent months, this report has demonstrated a regular deterioration in how consumers view their conditions. There are any number of catalysts that could explain it – affordability, geopolitical tensions, a stagnant labor market, tariffs. Perhaps more concerning is the fact that this reading is now lower than what it was during the depths of the COVID pandemic.
While high level economic numbers remain good, reports like this clearly show that not everyone is participating. The bottom half of the K-shaped economy is still struggling and could eventually take the economy down with them if they finally hit their limit on spending.
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The Week Ahead
A few themes to watch next week:
In Summary
While stocks were able to deliver modest gains on the week, the sharp rise in volatility in the precious metals demonstrates some level of instability here. Last week’s round of tech earnings show that market participants are becoming less interested in big spending and more interested in results from that spending. This coming week should be a good litmus test to see whether elevated volatility could stick around for a while.
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