Jerome Powell’s term as Fed chairman ends this Friday, with Kevin Warsh now confirmed by the Senate as his successor. The effects of the transition go beyond a change in Fed leadership. Additionally, Stephen Meran, who was appointed as Fed governor in September 2025 to fill the vacancy left by Adriana Kugler, is seeing his term expire.
Most notably during his tenure, he dissented at all six FOMC meetings he attended, consistently emphasizing the 50-basis point. To say that he was the greatest pigeon of the Fed. In the graphic below, we plot Miran’s year-end Fed funds projection in the Fed’s latest dot plot. As shown, Miran forecasts the year-end 2026 fed funds rate at 2.625%, nearly a full percentage point below the current average of 3.42%. That rude voice is gone now.
The arrival of Warsh changed the balance. Here are some ideas to keep in mind:
- Fed bowed a little more humbly: Warsh may turn out to be more of a badass than his reputation, but it’s nearly impossible to match Miran’s appetite for cuts.
- The next FOMC meeting on June 17 is unlikely to produce action. Judging by recent data, we see little appetite for a rate cut at the next FOMC meeting despite new leadership.
- Powell is not gone. He has pledged to remain Fed governor until January 2028, or until what he says is an ongoing investigation into the Fed’s construction plan and legal challenges against Governor Lisa Cook.Transparency and finality“
The bottom line: The Fed has just gotten progressively smarter, and the June meeting will be the first test of what that really means. Additionally, Kevin Warsh will now be on the speaking circuit, so we can better track his thoughts on inflation, employment, and the Fed moving forward.
Absolute and relative analysis signal sensitivity
It’s no secret that technology stocks, and within the technology sector, semiconductor and hardware stocks, are outperforming the market. The first graph below shows how overbought technology ( ) is in both absolute and relative terms. Often, such a wide difference in technical scores between sectors indicates that rotation is likely. The question we should then ask is what might be in favor of the technology if it is going to lose some momentum. This is where looking at both absolute and relative scores can be very helpful.
The answer to our question of which sector(s) lead the market to outperform is likely to be among the many underperformers. Let’s turn our attention to the second graphic. Instead of sectors, it uses stock factors to gauge how different stock types/styles are trading. Relative scores show that many factors have sold decently or even better than the market. But absolute scores show that many relatively oversold sectors are overbought to varying degrees. For example, we highlight the large-cap value sector, which is modestly overbought on an absolute basis despite being relatively oversold. Accordingly, rotation can potentially mean value, low beta, and generally more conservative stocks versus technology and high beta stocks, but it can occur during a broad-based market decline, bringing absolute scores closer to fair value for many factors and sectors.
It is also worth noting that the spread of dots in both graphics indicates poor magnification. Although not a recipe for decline, it points to critical conditions. Taken together, the analysis raises concerns that the market will decline in the coming weeks, with technology stocks likely lower and value stocks on track to outperform but still falling.
Mooney Junk ignored the headlines.
Private credit markets are in turmoil, with some investors clamoring to reduce exposure to bad debt. On top of fears in private credit markets, energy prices are high, consumer sentiment is poor, and interest rates are rising. However, the city of Houston had no problem selling junk-rated municipal bonds. Issued by the City of Houston and George Bush Intercontinental Airport, the BB+-rated debt offering is secured by fare payments from United Airlines.
Considering that airlines are struggling with high fuel prices, which are forcing them to raise ticket prices, and the recent bankruptcy of Spirit Airlines, this deal tells us a lot about where investor appetite is for high-yield debt. Simply put, demand for high-yielding securities is overriding headline risk.
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