Markets React as Trump Picked Warsh for Fed Chair—Stocks Slide Amid Rising Bond Yields

The financial markets delivered a cautionary message today as President Trump picked Kevin Warsh for the next Federal Reserve Chair position. The announcement rippled through equity and bond markets, creating a pronounced sell-off in rate-sensitive sectors while bond yields surged to multi-week highs. This market rotation reflects investor concerns about a more hawkish monetary policy stance under Warsh’s potential leadership, marking a significant turning point as current Fed Chair Jerome Powell’s tenure approaches its May conclusion.

Stock benchmarks slipped across the board in response to the Warsh nomination and stronger-than-expected inflation data. The S&P 500 Index declined 0.35%, while the Dow Jones Industrials Index fell 0.51% and the Nasdaq 100 shed 0.58%. March futures contracts showed similar weakness, with E-mini S&P 500 futures down 0.36% and E-mini Nasdaq futures declining 0.60%. The broader pressure stemmed from a combination of factors: investor reassessment of future interest rate policy following Trump’s pick of Warsh, alongside data suggesting persistent inflationary pressures in the economy.

Why Warsh’s Selection Matters for Monetary Policy

Kevin Warsh, who served as a Federal Reserve Governor from 2006 to 2011, has earned a reputation as a policy hawk with deep concerns about inflation risks. Market participants have characterized him as potentially less accommodative than other Fed Chair candidates, particularly regarding interest rate cuts that many investors have been anticipating. His nomination triggered an immediate revaluation of rate expectations, with markets now pricing in only a 16% probability of a 25 basis point rate reduction at the March 17-18 policy meeting.

The economic data backdrop reinforced the hawkish tone. US producer prices for final demand rose 0.5% month-over-month and 3.0% year-over-year in December, both exceeding consensus forecasts of 0.2% and 2.8% respectively. Core producer prices (excluding food and energy) showed even more pronounced strength, climbing 0.7% m/m and 3.3% y/y versus expectations of 0.2% and 2.9%. These readings suggested stubborn inflation remains a concern despite recent cooling in consumer prices.

Interest Rates Climb as Bond Markets Reassess

The nomination and inflation data sent bond yields sharply higher. The 10-year Treasury note yield rose 1.6 basis points to 4.247%, reaching a one-week high of 4.277% in reaction to the Warsh announcement. March 10-year T-note futures fell 4 ticks as traders repositioned for a higher rate environment. Treasury prices came under considerable selling pressure, reflecting expectations that a Warsh-led Fed might maintain elevated rates for an extended period.

European government bond yields presented a mixed picture. The 10-year German bund yield increased 0.8 basis points to 2.848%, while the 10-year UK gilt yield edged down 0.1 basis points to 4.510%. Notably, the eurozone’s December unemployment rate unexpectedly declined 0.1 percentage point to 6.2%, matching a record low and suggesting labor market resilience that could complicate European Central Bank policy decisions. Meanwhile, three-year inflation expectations in the eurozone rose 0.1 to 2.6%, a two-year high, hinting at persistent price pressures across the Atlantic.

Semiconductor and Mining Stocks Bear the Brunt

Market rotation accelerated sharply in rate-sensitive equity sectors. Semiconductor manufacturers experienced severe declines, with KLA Corporation leading losers in both the S&P 500 and Nasdaq 100 down over 11%. Western Digital fell more than 5%, while Advanced Micro Devices, Seagate Technology, and Microchip Technology all declined 2-3% or more. Applied Materials, NXP Semiconductors, and Texas Instruments each shed more than 1%, reflecting broad-based concerns about capital expenditure delays if borrowing costs remain elevated.

Precious metals and mining equities were hit even harder. Gold prices plummeted over 4%, while silver collapsed more than 13%—a dramatic move that reverberated through mining company stocks. Coeur Mining tumbled over 8%, Hecla Mining and Barrick Mining fell more than 6%, and Newmont and Freeport McMoRan declined 5% or more. The sharp retreat in commodity prices reflected both the immediate market reaction to higher real interest rates and the traditional inverse relationship between Treasury yields and precious metals valuations.

Earnings Season Provides Bright Spots

Despite broad market weakness, corporate earnings presented a more constructive narrative. Of the 143 S&P 500 companies that have reported results to date, 77% have beaten earnings expectations. The earnings season is expected to deliver roughly 8.4% year-over-year growth in Q4 for S&P 500 constituents overall, according to Bloomberg Intelligence. Excluding the “Magnificent Seven” megacap technology stocks, Q4 earnings growth is anticipated at 4.6%, demonstrating that earnings strength extends beyond the AI-mega-cap narrative.

Several companies delivered impressive quarterly results. Deckers Outdoor surged over 15% after reporting third-quarter net sales of $1.96 billion, exceeding consensus of $1.87 billion, and raising full-year guidance to $5.40–$5.43 billion from the prior $5.35 billion estimate. SanDisk jumped over 14% on second-quarter revenue of $3.03 billion, significantly above the $2.67 billion consensus. Charter Communications climbed over 11% after reporting 29.61 million residential customers, topping the 28.70 million expectation. Verizon Communications advanced 8% following strong Q4 subscriber additions of 616,000 and a new $25 billion share repurchase authorization.

Disappointments in Revenue and Guidance

On the negative side, several companies reported shortfalls that weighed on investor sentiment. PennyMac Financial Services cratered 36% after Q4 net revenue came in at $538.0 million, well short of the $626.8 million consensus estimate. Appfolio declined over 8% following full-year revenue guidance of $1.10–$1.12 billion, below the $1.13 billion expectation. Schneider National fell more than 6% after Q4 operating revenue of $1.40 billion disappointed relative to $1.45 billion consensus. Olin Corporation shed more than 6% after signaling that Q1 2026 adjusted EBITDA would be lower than Q4 2025 levels, a cautionary note about near-term momentum.

Global Markets Mirror US Concerns

International equity markets reflected the shifting sentiment around monetary policy. The Euro Stoxx 50 Index managed a 1.21% gain, suggesting some regional resilience. However, China’s Shanghai Composite fell to a 3.5-week low, closing down 0.96%, while Japan’s Nikkei 225 declined marginally by 0.10%. The mixed global performance underscored divergent regional outlooks as investors grapple with the implications of tighter US monetary conditions for global growth.

Government Funding Agreement Provides Temporary Relief

On a more positive note, President Trump announced late Thursday that he had reached a tentative agreement with Senate Democrats to avert a government shutdown. The deal would provide two weeks of funding for the Department of Homeland Security while negotiations over immigration enforcement continue, and includes full-year appropriations for several other federal agencies. House Speaker Johnson indicated a 72-hour timeline for a House vote, suggesting that while a partial shutdown remains likely, any disruption to federal operations would be brief and minimal.

Market Outlook and Fed Transition

The weeks ahead will likely see continued market digestion of the Fed Chair transition and the implications of a potentially more hawkish leadership direction. With 102 S&P 500 companies still scheduled to report earnings this week, the earnings calendar will compete for investor attention alongside speculation about Warsh’s policy inclinations and the Federal Reserve’s inflation-fighting priorities. The nomination has reset market expectations for interest rate policy, and Treasury yields climbing to multi-week highs reflect a market now discounting a more restrictive monetary policy path ahead.