by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our perspective on the recent market unwind and the key factors driving it. We then review Treasury Secretary Scott Bessent’s testimony before Congress and the implications for policy and markets. Next, we discuss Vice President JD Vance’s push to establish a floor on strategic mineral reserves and President Macron’s advocacy for a stronger euro. We round out the piece with a summary of key economic data from the US and global markets.

The Market Unwind: Several asset classes that saw sharp run-ups recently have begun pulling back as investors reassess global risk sentiment. Over the past two weeks, volatility has spiked in precious metals. Silver, which had recently surged past $100 per ounce, has now retreated toward $70. Domestic equities have similarly cooled amid a broad sell-off in major tech names. This shift reflects a “reality check” on AI hype, evolving expectations for central bank policy, and lingering geopolitical tensions.​

The AI Factor This sharp sell-off in tech stocks reflects growing investor “capex fatigue,” with many questioning whether the massive build-out will deliver high-margin returns. On Wednesday, despite Alphabet’s strong Q4 earnings, shares fell after management stated that 2026 capital expenditures will nearly double 2025 levels. The reaction underscores investor impatience for tangible results over further spending.

The Warsh Factor The nomination of Kevin Warsh to take over as Federal Reserve chair has triggered a sharp unwinding of the currency-debasement trade, fueled by renewed confidence in the Fed’s independence. Although President Trump emphasized that he would not have chosen Warsh if rate hikes were on the table, markets have interpreted the pick as a shift toward a more disciplined balance sheet policy. Investors now anticipate a less accommodative Fed under Warsh than previously expected.

Geopolitics Factor The easing of geopolitical tensions abroad has also fueled the retreat from safe-haven assets. US and Chinese leaders spoke ahead of scheduled negotiations on Wednesday, discussing trade and the war in Ukraine, which sparked optimism for constructive talks. Additionally, after recent signs of escalation, the US and Iran appear set to meet on Friday for nuclear discussions.

The recent unwinding of some positions may prove temporary, as we believe key underlying themes such as the expanding influence of AI, sustained central bank purchases of precious metals, and ongoing global fragmentation into regional blocs will remain intact despite recent volatility. Nevertheless, we maintain that the most prudent defense against these shifts is to ensure broad diversification across sectors (reducing overexposure to technology) and geographies, which should contribute to a more resilient and balanced portfolio.

Bessent Testifies: On Thursday, Treasury Secretary Scott Bessent met with lawmakers to discuss the state of the economy and the White House agenda. Over the three hours of testimony, remarks covered the role of the Federal Reserve, the impact of tariffs, US crypto policy, as well as other topics. While the testimony was at times very testy, particularly with Democratic lawmakers, it had no material impact on the markets. That said, his remarks provided key insights into the administration’s economic agenda.

Fed Independence Bessent’s comments suggest that while the White House publicly supports Federal Reserve independence, it may simultaneously seek to rein it in. He specifically targeted the Fed’s credibility, arguing for increased accountability after the central bank allowed inflation to exceed its targets and faced scrutiny over renovation funding. His critique appears to signal a push for greater executive oversight of the central bank.

Tariffs Additionally, Bessent’s testimony signaled that the White House is doubling down on its trade agenda rather than retreating. When challenged on a 2024 note where he previously characterized tariffs as inflationary, he pivoted, citing a San Francisco Federal Reserve study that suggests tariffs do not drive broad-based inflation. By reframing tariffs as a tool for economic resilience, his comments suggest the administration remains open to further trade duties if it deems it necessary.

Cryptocurrency Lastly, Bessent suggested that the administration may not prioritize the protection of crypto investors. When asked if he would intervene to support bitcoin, he clarified that the Treasury would not influence markets to artificially boost prices, noting that it lacks the authority to use public funds for such a bailout. These comments likely reflect the administration’s narrow focus on stablecoins — a preference largely driven by their utility in absorbing short-duration government debt.

Based on the Treasury secretary’s comments, it appears that the White House intends to remain actively engaged in managing the economy. This is likely to include using targeted trade restrictions to support reshoring, keeping the Federal Reserve operating within defined limits, and narrowing the administration’s crypto agenda toward stablecoins rather than the broader digital asset class. As a result, we continue to believe that firms broadly aligned with the White House’s policy priorities could perform well in this environment.

Vance Price Floor: At a ministerial meeting on critical minerals, the vice president endorsed the creation of a preferential trade zone. This proposal includes a price floor designed to insulate domestic markets from predatory practices, specifically “dumping” by nations like China, which often price out local competitors. This initiative underscores a growing global trend toward economic blocs as a primary defense against foreign industrial competition.

Strong Euro Policy: French President Emmanuel Macron is expected to advocate for euro appreciation against the dollar at next week’s EU summit, arguing it would enhance economic resilience and the currency’s global standing. While his specific policy proposals remain unclear, his position echoes the White House’s long-held view that the euro is undervalued, potentially opening the door to coordinated efforts to bolster it. If Macron secures support for this initiative, it should prove favorable for European equities.

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