Warsh Sale Rule Begins

Despite being fluent in corporate-speak, Kevin Warsh still got the point across during his first FOMC presser as Fed Chair that inflation is a legitimate concern, perhaps more than Jerome Powell let on during his final years as Chair. As a result, equities mostly reversed lower albeit with the plucky semiconductors still up nicely on the session. Rates on the 10-Year are mildly bouncing, though still consolidating just below the key 4.5% area. 

While we know the AI-focused semiconductors, led by the likes of SNDK MU MRVL AMD, among others, are the marquee leaders of the tape of late, the massive Magnificent 7 stocks continue to notably diverge. To be sure, bears have tried to harp on the software sector stocks lagging in the IGV ETF. But that seems to be cherry-picking more than anything else, since the broad market was able to ignore software weakness for a while. 

But given the sheer size of markets caps, in aggregate, in the MAGS ETF (ETF for the Mag7 stocks), below on the daily chart, the relative and absolute weakness seems more concerning. As you can see, the ETF looks to be rolling over from a daily chart bear flag. 

Also, we are not just talking about META MSFT weakness in the Mag7, as they have been lagging for a while now. Instead, we have the likes of AMZN GOOGL TSLA also notably weak today as well. 

As we have discussed with Members, there is more than one hundred years worth of data which say that markets love to put new Fed Chairs to the test quickly after they assume the role, in the form of market weakness and/or volatility in equities. Given the melt-up to this point coupled with the extreme retail speculation and institutional all-in positioning, this seems like an ideal spot for that history to reassert itself as Warsh attempts to open his tenure with a firm hand in the face of inflation running above The Fed's target for more than five years.