What Kevin Warsh as Fed Chair could mean for US real estate and retail trading

Key Concepts

• MAG 7: The seven largest US technology companies (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta).
• Basis Points: A unit of measurement equal to one-hundredth of a percentage point (0.01%).
• Hawkish/Dovish (Fed Policy): Hawkish refers to a stance favoring higher interest rates to control inflation, while dovish favors lower rates to stimulate economic growth.
• Mean Reversion: The tendency of an asset's price to return to its average value over time.
• Notional Value: The total value of a derivative contract, often significantly larger than the actual investment.
• Build-to-Rent (BTR): A housing model where developers build single-family homes specifically for rental purposes.
• FOMC: Federal Open Market Committee, the body within the Federal Reserve System that sets monetary policy.
• SLV ETF: An Exchange Traded Fund tracking the price of silver.
• AWS: Amazon Web Services, Amazon's cloud computing platform.
• Gemini: Google's AI model.

Market Action & Weekly Performance

Stocks closed lower on the day following a volatile week. Here’s a breakdown of the key indices:

• Dow Jones Industrial Average: Down 177 points (1/3 of 1%), down 4/10 of 1% for the week.
• S&P 500: Up 1/3 of 1% for the week.
• Nasdaq Composite: Down 17 basis points (nearly flat) for the week.
• Small Caps (Russell 2000): Down 1.6% for the week – the worst performing segment.
• Micro Caps: Down 2.7% for the week, reversing gains from earlier in January.
• MAG 7: Up almost 1% for the week overall.
• Dow Transports: Up 1/2 of 1% for the week.

Sector Performance (5-day look):

• Leading: Energy (up 3.8%), Communication Services (driven by Meta).
• Lagging: Healthcare (down 1.7%), Technology.
• Daily Performance: Staples and Energy were up over 1%, while Tech was the worst performer.

Individual Stock Performance (Weekly):

• Microsoft: Down 7.7%.
• Tesla: Down 4%.
• Meta: Up 9% (reached a record high for two consecutive days).
• Apple: Up 5%.
• Alphabet: Up 3%.

Retail Investor Sentiment & Fed Dynamics

Morgan Stanley Wealth Management reports that retail investor bullishness remains steady into 2026. However, changing Fed dynamics and economic uncertainty are key concerns.

Trump’s Fed Pick (Kevin Worsh):

• President Trump announced his intention to nominate Kevin Worsh as the next Fed chair.
• Worsh is perceived as potentially more hawkish on monetary policy.
• Retail investors on StockTwits expressed confusion, as Trump previously suggested a desire for lower rates.
• The market is reacting with some mean reversion in assets like the dollar, silver, and gold due to the perceived shift towards a more hawkish stance.
• Tom Brun (StockTwits Head of Markets) noted that the market is viewing this as more hawkish than expected, but there's still time for changes before May when Powell's term ends.

Retail Investor View of the Fed:

• Retail investors prioritize clear communication from the Fed, particularly regarding interest rates.
• They believe lower rates benefit high-growth areas, while higher rates are detrimental.
• There's a perception that the Fed has been “behind the curve” on inflation, potentially hiking rates too late and being hesitant to cut them.

Metals Market Volatility

Silver and gold experienced significant volatility this week.

• Silver: Experienced a parabolic run, trading $40 billion worth of shares in the SLV ETF on one day. Futures trading volume reached levels equivalent to two years of silver production. This disconnect between speculation and physical supply is currently correcting.
• Gold: Also saw a blistering run, fueled by increased retail participation and marketing.
• The Worsh nomination contributed to the correction in metals prices, as a more hawkish Fed chair is less likely to support policies that boost precious metals.
• Despite the short-term correction, the longer-term thesis for metals remains intact, based on expectations of accelerating inflation.

Tech Sector & Individual Stocks

• Software Stocks: Have been “killed” due to the AI trade, with companies like Adobe, Salesforce, and Trade Desk down 50-70%.
• Zoom: Broke out to its highest level since August 2022, driven by an investment in Anthropic (valued at $350 billion). This investment is estimated to be worth $2-4 billion, representing a significant portion of Zoom’s $25 billion market cap.
• MAG 7 Earnings: Earnings reports from the MAG 7 companies are a key focus for investors. Analysts are particularly watching Amazon (AWS growth) and Alphabet (Gemini traction).

GameStop Anniversary & Retail Investor Influence

• The five-year anniversary of the GameStop short squeeze was noted.
• Wall Street’s attitude towards retail investors has significantly changed.
• Retail investors now account for 20-25% of average daily trading volume.
• Companies are actively courting retail investors and engaging with them through platforms like StockTwits.

Housing Market & Trump’s Executive Order

• President Trump is focused on housing affordability and wants the Fed to lower mortgage rates.
• Kevin Worsh’s nomination is expected to have a limited impact on mortgage rates, as the Fed only directly controls the short-term Fed funds rate.
• Lowering short-term rates could potentially increase long-term rates if investors remain concerned about inflation.
• The Fed views housing affordability primarily as a supply problem, not a demand problem.
• Trump issued an executive order targeting institutional investors buying single-family homes, but exempting the build-to-rent (BTR) sector.

Build-to-Rent (BTR) Sector:

• BTR adds supply to the market, unlike institutional purchases of existing homes.
• The sector is booming, with over 320,000 homes built since 2012, most in the last five years.
• BTR tenants have an average income of $126,000, a credit score in the mid-600s, and are often college-educated.
• BTR offers a flexible housing option with longer tenancy rates (4-5 years vs. 2 years for apartments).
• The BTR sector is 97% leased nationally.

Upcoming Earnings & Economic Data

• Earnings Focus: Amazon, Alphabet, AMD, Disney, Merck, Eli Lilly, and Novo Nordisk.
• Key Themes: AWS growth, Gemini traction, semiconductor demand, Disney’s parks performance and streaming profitability.
• Senate Hearing: Regarding the proposed Netflix/Warner Bros. Discovery deal.
• January Jobs Report: Expected to show a gain of 65,000 jobs, with unemployment at 4.4% and hourly wages up 0.3% month-over-month.

Conclusion

The market experienced a volatile week, influenced by earnings reports, shifting Fed expectations, and geopolitical factors. Retail investor sentiment remains bullish, but concerns about economic uncertainty and Fed policy are growing. The housing market is a key political focus, with President Trump seeking to address affordability issues. The build-to-rent sector is poised for continued growth, while the tech sector faces challenges and opportunities related to AI. Upcoming earnings reports and the January jobs report will be crucial indicators of the market’s direction.