Trump Picked Warsh. AI Spending Split the Tape.
GOOD MORNING, Friday forced markets to reprice two narratives at once. President Donald Trump nominated former Fed governor Kevin Warsh to replace Jerome Powell, choosing a candidate with a hawkish inflation record even as the White House keeps pushing for lower rates. The same morning, December producer prices rose 0.5%, the biggest monthly increase in five months. Stocks fell, with the Nasdaq down 0.9%. Underneath the index, AI continued to split winners from losers: Microsoft stayed under pressure after its cloud disappointment, while SanDisk rallied on stronger AI-storage demand. The market is still funding AI. It is becoming much less forgiving about who earns the return. MARKETS | TLDR
FEDWarsh Just Put the Fed’s Next Regime on the TapePresident Trump nominated Kevin Warsh to become the next Federal Reserve chair when Jerome Powell’s leadership term ends in May. Warsh served as a Fed governor from 2006 to 2011 and built a reputation as an inflation hawk, although he has more recently argued that rates should be lower and that the central bank needs what he calls a broader “regime change.” The market read-through is not simply whether Warsh cuts or hikes. Investors now have to price a potential overhaul of the Fed’s balance-sheet policy, regulatory stance and institutional relationship with the White House. Trump has repeatedly pushed for deeper rate cuts, while Warsh has also argued that AI-driven productivity could allow the economy to grow faster without generating as much inflation. The confirmation process adds another layer of uncertainty. Senator Thom Tillis said he would oppose any Fed nominee while the Justice Department’s investigation of Powell remains unresolved. That means markets may spend months trading not just the rate path, but the credibility and independence of the institution setting it. AI RETURNSMicrosoft Lost $350 Billion. Meta Proved Why.Big Tech earnings delivered a blunt message this week: investors will tolerate enormous AI spending when it produces visible growth, but not when the payoff looks delayed. Microsoft fell 10% Thursday and erased more than $350 billion of market value after Azure growth failed to impress investors despite the company’s massive AI infrastructure buildout. Meta provided the opposite case. Its shares jumped about 10% after reporting 24% fourth-quarter revenue growth and explaining how AI was improving both ad targeting and user engagement. Meta is also increasing spending aggressively, but investors rewarded the company because the revenue benefit is already showing up in the core business. That distinction is becoming the central AI valuation framework. The question is no longer whether hyperscalers will spend — they clearly will. It is which companies can turn capex into incremental revenue quickly enough to justify the capital intensity. Friday’s tape reinforced the point: SanDisk rose on stronger AI-storage demand, while other semiconductor equipment names fell despite solid earnings because expectations were already high. HEADLINES
UPCOMING
DEEP INSIGTHSTrump Taps Kevin Warsh to Lead the FedRead this for the institutional stakes behind Friday’s market reaction. Warsh is not simply a rate-call candidate; he has advocated reshaping the Fed’s balance sheet, regulatory role and monetary framework while the White House is simultaneously testing central-bank independence. Investors Punish Big Tech AI Spending That Delivers Slower GrowthThis is the cleanest summary of the AI market’s new rule. Microsoft and Meta are both spending aggressively, but the stocks moved in opposite directions because only one showed an immediate, visible payoff. The next phase of the AI trade is about return on capital, not simply the size of the capex budget. |