CWS Market Review – February 3, 2026

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Trump Selects Kevin Warsh to Lead the Fed

One week ago, the S&P 500 closed at a new all-time high. Since then, the index broke above 7,000, but it hasn’t been able to close above that level.

In last week’s issue, I mentioned the big bull market in silver. Well, that came to an abrupt end on Friday as the price of silver plunged on world markets.

By the end of Friday’s trading, silver had lost 27%. That was the white metal’s biggest one-day loss in 45 years. Silver dropped again on Monday. Last week, silver got as high as $120 an ounce, then as low as $71 an ounce. Gold dropped sharply as well.

So what caused gold and silver to fall off a cliff? On Friday, President Trump nominated Kevin Warsh to be the next chairman of the Federal Reserve. He’s seen as a more “hawkish” candidate than what had been expected. Gold and silver love lower interest rates, but higher rates are their kryptonite.

In many ways, the selection of Warsh is both a conventional choice and a very unconventional choice. Warsh is largely within the mainstream of economic thought. Plus, he’s already served on the Federal Reserve board. In fact, he was the youngest member in the Fed’s history, and he helped shape the Fed’s response to the financial crisis. Warsh is currently a senior fellow at the Hoover Institution at Stanford.

Warsh still needs to be confirmed by the Senate but that shouldn’t be a major obstacle, and the betting markets appear to agree. If confirmed, Warsh would be leading a Fed that’s at an important juncture. Jerome Powell has been harshly criticized by President Trump who wants to see much lower interest rates. While inflation has subsided in recent months, it’s still above the Fed’s target of 2%. Jerome Powell’s term ends in May.

Warsh will likely face some doubts from members of Congress as to his independence from political pressure. Historically, the Fed has tried to distance itself from political pressures, but these efforts have not always been successful.

Of course, the Fed is also facing an investigation by the Justice Department for actions surrounding the Fed’s new building. I suspect this won’t get far. Thom Tillis, a Republican senator of North Carolina, said he wouldn’t support any nominee until the DOJ’s investigation has concluded.

For much of his career, Warsh was been seen as an inflation hawk, meaning someone who has favored higher interest rates. That probably helped cause the big drop in gold and silver. Only recently has Warsh been critical of higher rates. He has also said that tariffs will not lead to higher inflation.

On Truth Social, President Trump said of Warsh, “He will go down as one of the GREAT Fed Chairmen, maybe the best.” Bear in mind that we don’t get new Fed Chairs very often. In the last 75 years, there have only been eight Fed chairs.

President Trump has often said that he wanted to fire Jerome Powell, but that’s a tricky area legally. The president probably can’t fire a Fed chair over a simple policy dispute. In fact, the Supreme Court is currently looking at the case of Lisa Cook, a Fed governor, whom Trump wanted to fire from the Fed. The Supreme Court appears to be leaning against Trump’s decision.

We should also remember that the Federal Reserve isn’t just one person. The Federal Open Market Committee, which sets interest rate policy, is a 19-member committee. Even with that, only 12 members are voting members. The 12 are composed of the seven Federal Reserve board members plus five regional bank presidents. The head of the New York Fed is a permanent member, and the four other seats rotate.

The Fed recently voted to keep interest rates between 3.5% and 3.75%. Two members dissented. They wanted lower rates immediately. Futures traders currently expect the Fed to cut rates two more times this year.

Mr. Warsh has been very critical of the Fed in recent years. In particular, he blames the Fed for missing the surge in inflation during Covid. He was also against the Fed’s quantitative easing policies.

Now here’s where things get interesting. Warsh’s father-in-law is Ronald Lauder who is an heir to the Estee Lauder fortune. Lauder is estimated to be worth $5 billion. He’s been a big supporter of President Trump and a major financial backer of Republican candidates. In 1989, he ran for mayor of New York City but lost in the primary to Rudy Giuliani. It’s been reported that he encouraged Donald Trump to buy Greenland. Obviously, Warsh can’t be assumed to share his father-in-law’s views, but I’m sure Congress will ask him.

I expect Warsh to be confirmed by the Senate and he will generally try to steer the Fed toward lowering interest rates, but Warsh may not always get his way. Historically, reality has an odd way of interfering with the bold plans of money politics.

Speaking of which, my friend Gary Alexander notes that this time of year has been notable for several important events in the history of gold, silver and money. Here’s a sample:

At 9:30 on February 5, 1894, J.P. Morgan stormed into President Cleveland’s White House office and demanded an audience. After cooling his heels while Cleveland called the Treasury for details on what this invasion might mean, Morgan was ushered in. By now, the U.S. only had $9-million in gold to meet claims, and there were $12-million in current drafts against a shrinking supply, so President Cleveland sheepishly asked Morgan, “Well, sir, what would you suggest?” This comment passed the power of the purse from the White House to Morgan and Wall Street. In short order, Morgan saved the Treasury with an infusion of gold from London. From 1895 to his death in 1913, Morgan served as America’s central banker – and he did a better job than the Federal Reserve did in its first 20-years, from 1913 to 1933.

This Friday, the government will release the January jobs report. The last few job reports haven’t been that good. In its last policy statement, the Fed noted that “job gains have remained low, and the unemployment rate has shown some signs of stabilization.”

The ADP payroll report is due out tomorrow. For that report, Wall Street expects to see a gain of 45,000 jobs. For Friday, economists estimate that the economy created 60,000 net new jobs in January. They’re also pegging the unemployment rate at 4.4%.

For hourly average earnings, economists expect to see a gain of 0.3% for last month, and a 3.7% gain for the last 12 months. This is an important stat. Wage growth has a way of quickly becoming business revenue and that becomes a profit. If employment continues to be weak, that may help the interest rate doves on the FOMC.

This continues to be a good earnings season for Wall Street. The S&P 500 is on pace to post earnings growth of 11.9% for Q4. If this holds up, it will be the fifth quarter in a row that the index has delivered a double-digit increase in profits. The last time it reported five straight quarters of 10% or more earnings growth was in 2017 and 2018. Analysts currently expect the S&P 500 to have double-digit earnings growth for all four quarters of 2026.

Analysts have been busy raising their Q4 earnings estimates. At the end of Q3, Wall Street had been expecting earnings growth for Q4 of just 7.2%. By the end of Q4, that forecast was raised to 8.34%. Now it’s at 11.9%. For the tech sector, Q4 earnings growth is tracking at 29.8%.

The overall net profit margin is currently running at 13.2%. That’s very high. If it holds, it will stand as the highest profit margin since FactSet started tracking this data in 2009. The current record is 13.1% which happened last quarter.

Technology has increased its profit margin from 26.8% last year to 29.0% this year. Industrials are up to 12.5% from 10.7% last year. Wall Street expects to see profit margins get even higher. By Q3, analysts expect profits to be over 14%.

That’s all for now. Expect more earnings news this week. We also have the big jobs report on Friday. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. From S&P Global Intelligence: Over the past 59 years, the median combined final score of the Super Bowl has been 47 points. When the two teams score 47 or more points, the S&P 500 posts an average return of +17.8%. When the combined score is less than 47 points, the average return is only +6.6%.

Go offense!

Posted by on February 3rd, 2026 at 5:40 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.