We Have A New Fed Chair

Good morning investors,

President Trump nominated Kevin Warsh to succeed Jerome Powell as Federal Reserve chair this morning, ending months of uncertainty around central bank leadership. Markets initially dropped on precious metals carnage and Microsoft's ongoing selloff, but futures trimmed losses after the Warsh announcement.

Apple delivered a blockbuster quarter with record $85.3 billion iPhone revenue and a stunning 38% China surge. SanDisk posted one of the most impressive earnings beats I've seen, with Q3 guidance crushing estimates by 77%. Gold and silver are plunging this morning as the parabolic precious metals rally finally corrects, exactly the volatility I've been warning about.

S&P 500 ($SPY ( ▲ 0.07% )) futures down 0.3%, Nasdaq ($QQQ ( ▲ 0.21% )) futures off 0.4%, and Dow ($DIA ( ▲ 0.12% )) futures losing 103 points, trimmed from earlier declines of around 0.8% following the Fed chair announcement.

Gold ($GLD ( ▲ 2.49% )) futures dropped more than 4%, while silver ($SLV ( ▲ 2.94% )) plunged 12%, with silver moving below $100 and gold below $5,000. Both have since bounced slightly from lows. Despite the carnage, gold and silver remain higher over the past year by 80% and 209% respectively.

Trump said in his Truth Social post: "I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best."

Warsh's selection likely eases concern about Fed independence because of his experience as a Fed governor and strong stance at times against inflation. While he's likely to push for lower rates in the short term as Trump wants, financial markets view him as someone who wouldn't always follow the president's direction.

I believe that Kevin Warsh has the respect and credibility of the financial markets. There was no person who was going to get this job who wasn't going to be cutting rates in the short term, but I do believe that longer term he will be a credible candidate, and can keep the Feds independence.

The nomination comes at one of the most precarious moments for the Fed in decades, with inflation not fully defeated, government borrowing escalating, and the central bank facing unusually direct political pressure. The Justice Department's subpoena of Powell regarding the headquarters construction project and the Lisa Cook Supreme Court case created unprecedented turbulence.

Warsh called for "regime change" at the Fed in a CNBC interview last summer, saying "the credibility deficit lies with the incumbents." That position could put him in an adversarial role at an institution where consensus building is key.

Markets don't expect dramatic action: traders are pricing in at most two more cuts this year before the benchmark fed funds rate lands around 3%, which policymakers have indicated is the long run neutral rate.

The question now is whether Powell serves out his remaining two years as a governor. Historically, chairs have resigned their Fed positions after being removed, but Powell could choose to stay as a bulwark against efforts to compromise Fed independence.

The sell off I've been warning about is showing glimpses. Silver plunged 11% on futures exchanges with spot prices moving below $100. Gold dropped 5.5% with front-month contracts falling below $5,000. Platinum down more than 14%, palladium falling close to 12%.

I' said early this week, around $116 that silver's parabolic move felt extended, posting two 4-sigma moves in the same day with the strongest six-month momentum since 1979-1980. That kind of action historically signals later stages of a rally rather than the beginning. I called for a pullback to $80. Now i gave no guarantees. In a short squeeze, the moves are outsized and volatile. The upside potential is still there. I have just been hearing too many, in my opinion, retail traders talking about buying silver at crazy high prices, having never been interested before.

Gold offers a cleaner risk-adjusted hedge, but even gold was due for consolidation after surging 65% in 2025 and another 15% year to date. The Warsh nomination may be providing cover for profit taking as Fed uncertainty diminishes.

Mining stocks are getting crushed globally. Fresnillo down 7%, Endeavour Silver down 14.7%, First Majestic Silver losing 14.4% in premarket. The ProShares Ultra Silver fund down 25%.

Apple crushed Q1 estimates with iPhone revenue hitting an all time record of $85.3 billion, blowing past expectations by nearly $7 billion. Total revenue of $143.76 billion beat the $138.48 billion forecast by 4%, up 16% year over year. EPS of $2.84 topped the $2.67 estimate by 6%.

The China story is the headline. Greater China revenue surged 38% to $25.53 billion, reversing declines in three of the last four quarters. CEO Tim Cook said they set "an all-time record for upgraders in mainland China" with "a lift that, frankly, was much greater than we thought we would see."

Cook on iPhone demand: "The demand for iPhone was just simply staggering."

Services slightly missed at $30.01 billion versus $30.07 billion expected, but that's noise compared to the iPhone blowout. Mac missed at $8.39 billion versus $8.95 billion expected, down 7% year-over-year. Wearables missed at $11.49 billion versus $12.04 billion expected.

Apple's AI approach differs dramatically from peers. Capex of just $2.37 billion compares to Meta's $115 billion to $135 billion commitment. Apple is partnering with Google's Gemini rather than building infrastructure, with R&D of $10.89 billion, up from $8.27 billion, showing AI spending ramping but at a fraction of hyperscaler levels.

The installed base hit 2.5 billion active devices, up from 2.35 billion last year, growing the addressable market for Services. Capital return of $32 billion in buybacks and dividends in Q1 alone.

A standout performer in the S&P 500 last year delivered a killer quarter that deserves more attention. SanDisk crushed Q2 estimates by an enormous margin, with EPS of $6.20 nearly doubling the $3.44 expected, an 80% beat. Revenue of $3.03 billion topped the $2.67 billion forecast, up 61% year-over-year.

But the Q3 guidance is the shocker. Revenue guidance of $4.4 billion to $4.8 billion, with a midpoint of $4.6 billion versus $2.6 billion expected, is 77% above consensus. Adjusted EPS guidance of approximately $13 versus $5.11 expected is 154% above consensus.

Data center revenue grew 64% sequentially and 76% year-over-year to $440 million as AI companies' "insatiable demand" for memory and storage drives outsized growth.

CEO David Goeckeler: "This quarter's performance underscores our agility in capitalizing on better product mix, accelerating enterprise SSD deployments, and strengthening market demand dynamics, all at a time when the critical role that our products play in powering AI and the world's technology is being recognized."

The stock was up 127% year to date already, making it the best S&P 500 performer, and popped another 19% after hours. The memory shortage driving prices higher is a tailwind SanDisk is capitalizing on perfectly.

The monolithic Big Tech trade is splintering before our eyes. For three years, investors treated the Magnificent Seven as a unified AI bet. This earnings season exposed how different these businesses actually are.

Microsoft shed more than 10% Thursday, its worst post-earnings drop in a decade, even after beating estimates. The culprit was Azure growth decelerating to 39% from 40% last quarter while quarterly capex exploded to $37.5 billion. Investors are questioning whether the spending translates to returns.

Meta announced even larger AI commitments, $115 billion to $135 billion for 2026, yet shares surged 8%. The difference is execution visibility. Meta's ad business delivered 24% revenue growth, proving the core engine works while management bets on AI infrastructure.

Apple took a different path entirely. Record iPhone revenue of $85.3 billion and the China turnaround showed that embedding AI into existing products customers already love generates immediate cash flow. No speculative data center buildouts required, just software updates that drive hardware upgrades.

Two distinct strategies are emerging. Infrastructure-first companies pour billions into capacity hoping monetization follows. Product-first companies layer AI onto proven businesses and collect returns now. Neither approach is wrong, but investors are clearly rewarding near-term certainty over long-term promise.

Microsoft faces 90 days of scrutiny until next earnings. If the selloff extends, meaningful opportunity could develop for patient investors willing to look past temporary multiple compression.

Exxon beat Q4 estimates with adjusted EPS of $1.71 versus $1.68 expected on revenue of $82.31 billion. The company achieved its highest full year net production in more than 40 years at 4.7 million barrels per day, with Permian and Guyana assets setting output records.

Chevron beat with adjusted EPS of $1.52 versus $1.45 expected on revenue of $46.87 billion. Production increased 12% worldwide and 16% in the U.S. to record levels. Chevron said it can ramp up Venezuela production by 50% over the next 18 to 24 months following the Maduro removal.

Both stocks slipped in premarket despite the beats as crude logged its biggest annual price decline since 2020.

Verizon forecast annual profit and free cash flow above expectations as aggressive holiday promotions helped deliver the highest quarterly wireless subscriber additions in six years. The company added 616,000 monthly bill-paying wireless subscribers, trouncing the 417,250 expected.

CEO Dan Schulman: "Verizon will no longer be a hunting ground for our competitors."

2026 adjusted profit guidance of $4.90 to $4.95 per share beat estimates of $4.76. Free cash flow expected at least $21.5 billion, above the $20.96 billion forecast.

The dollar fell close to its lowest level in four years as trade shifts, global instability, rising debt loads, and volatile U.S. policy dragged down the greenback. The Bloomberg Dollar Spot Index logged its steepest four-day drop since April.

Treasury Secretary Bessent said the U.S. is still pursuing a "strong dollar policy," but earlier in the week Trump said the recent fall was "great." So rather than coordinated currency intervention, a flagging dollar is just the market reacting to mixed signals.

Just be prepared for numerous videos being shared of Ray Dalio's "end of empires" thesis. This is the normal route we go when markets and the dollar particularly get volatile.

The Warsh nomination provides clarity on one of the biggest uncertainties hanging over markets. While questions remain about Fed independence and how Warsh will navigate his relationship with Trump, his credibility with financial markets is a net positive. Markets can handle known quantities, even imperfect ones, better than persistent uncertainty.

The precious metals correction validates the caution I've expressed about silver in particular. Parabolic moves eventually correct, and the 11% silver plunge and 5.5% gold drop show how violent that correction can be. I still sit on the side of short silver in the short term and would like to see it pull back to $80. Gold offers a cleaner risk-adjusted hedge for those wanting precious metals exposure.

Apple's record iPhone quarter and 38% China surge prove that hardware excellence still matters. The contrast with Microsoft's selloff illustrates the emerging bifurcation in Big Tech: investors are rewarding companies generating profits from products in consumers' hands today over those betting billions on infrastructure for tomorrow.

SanDisk's 77% revenue guidance beat is one of the most stunning I've seen and proves AI infrastructure spending isn't slowing, it's accelerating. The memory shortage is real and companies positioned to capitalize are being rewarded.

We are starting to see the levels of volatility I've been discussing for a while. Outsized movements in precious metals, 10% single day drops in trillion-dollar companies, and dramatic earnings divergence within the same sector. This environment rewards selectivity and punishes complacency.

Have a great weekend.

As always, feel free to reach out with questions about positioning.

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.