Wall Street Slips After Trump Picks Fed Critic Warsh

U.S. stocks fell Friday after President Donald Trump nominated former Fed Governor Kevin Warsh to lead the U.S. central bank, a decision that many investors view as a hawkish pick.

Investors expect Warsh to support lower interest rates but stop well short of a more aggressive monetary policy easing associated with some of the other potential nominees. His appointment needs Senate confirmation.

Meanwhile, producer prices increased more than expected in December, suggesting inflation could pick up in the months ahead.

"There is a general sense of hawkishness in the market following the emergence of Kevin Warsh's name. He is viewed as less dovish than many of the other candidates and is expected to favor fewer rate cuts," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"From a policy perspective, the composition of the Fed's leadership should not, in theory, override its mandate," Ozkardeskaya said.

Investors continued to bet on at least two 25 basis-points interest-rate cuts by the end of 2026.

The central bank held rates steady earlier this week, pausing an easing cycle which has supported U.S. stocks.

Futures slid overnight, while the dollar and Treasury yields climbed on Thursday following media reports that the White House was preparing for Trump to nominate Warsh as the next Fed chair.

At 10:33 a.m. the Dow Jones Industrial Average fell 211.41 points, or 0.43%, to 46,860.15, the S&P 500 lost 31.30 points, or 0.45%, to 6,937.71, and the Nasdaq Composite lost 160.12 points, or 0.66%, to 23,528.27.

The small-cap Russell 2000 index , which is more sensitive to interest rates, fell 0.3%. The CBOE volatility index — Wall Street's "fear gauge" — gained 0.32 points to 17.2.

SMALL-CAPS OUTPERFORM

With corporate earnings underway, Microsoft logged its worst day since March 2020 after its cloud revenue failed to impress, triggering a broad tech selloff on Wall Street on Thursday. Its shares dipped 0.1%.

Apple fell 1.8%. The iPhone maker forecast higher-than-expected revenue growth of up to 16% for the March quarter, but warned that rising memory chip prices had started to pressure profitability.

Wall Street has largely rebounded from bouts of selling pressure stemming from Trump's plans to acquire Greenland and a mixed batch of quarterly earnings.

Of late, signs of AI trade getting crowded have sparked a rotation into small-caps and other overlooked corners of the market.

The Russell 2000 index of small caps stocks is on track to end the month up nearly 7%, while the S&P 600 is headed for a gain of more than 6%. That compares with rises of a little more than 1.8% each for the S&P 500 and the Nasdaq.

DOW WINNING STREAK

The Dow, meanwhile, is poised to notch a ninth straight monthly advance, its longest winning streak since 2018.

Of the 133 companies in the S&P 500 that have reported so far, about 74% beat analysts' expectations, LSEG data on Thursday showed.

SanDisk shares surged almost 20% after better-than-expected third-quarter forecast as AI fuels storage demand. KLA Corp beat Wall Street expectations for second-quarter profit and revenue but shares dropped 7.7%.

Verizon shares gained 7% after the wireless carrier forecast upbeat annual profit. American Express forecast annual profit largely above Wall Street expectations, but its shares slipped 2.5%.

Chevron shares rose 1% after the oil major posted fourth-quarter profit above expectations, while Exxon Mobil shares dipped 1% despite beating Wall Street estimates.

U.S.-listed gold and silver miners tumbled following a more than 5% drop in bullion prices and an 11% slide in the white metal. The S&P's Material index dropped 1.3%, leading declines.