- Major U.S. indexes logged small daily and weekly declines as the 10-year Treasury yield climbed to about 4.23%, a four-month high, pushing rate-cut expectations further out.
- Markets priced rising political risk after Jerome Powell said the DOJ issued subpoenas and threatened criminal charges tied to his Senate testimony on a roughly $2.5B Fed renovation.
- Fed-succession speculation intensified as Trump downplayed Kevin Hassett, boosting odds for Kevin Warsh and reinforcing a more hawkish policy outlook.
- Sector leadership split, with chipmakers outperforming on AI optimism and insider buying while software lagged despite signals it may be oversold versus semis.
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On January 16, 2026, several interlocking developments shaped market behavior. First, Treasury yields broke out to their highest levels since September 2025. Specifically, the 10-year note touched ~4.23% amid signals that expectations for early rate cuts are being pushed further out. The primary trigger was political uncertainty regarding who will succeed Jerome Powell as Fed Chair—President Trump’s reluctance to nominate Kevin Hassett and the potential emergence of Kevin Warsh in that role sharply shifted rate-cut expectations.
Second, the Justice Department’s investigation into Powell significantly escalated the political risk component in financial markets. Subpoenas threatening a criminal indictment tied to Powell’s congressional testimony about the Fed’s expensive renovation projects (totaling ~$2.5 billion) have raised alarms about whether political actors are seeking to influence monetary policy through legal means. Senior Fed officials and members of Congress, including Republicans, have pushed back, defending the Fed’s independence.
Third, technical and sectoral dynamics point to a pronounced divergence between chipmakers and software names. Semiconductor companies like Micron, Broadcom, AMD saw strength following strong results and insider accumulation, while software firms lagged, partially due to concerns around AI disruption. Notably, LPL Financial’s Chief Technical Strategist suggested that the software-to-semis ratio has reached long-term support, setting the stage for a possible relative rebound in software stocks.
From a strategic standpoint, the key question is how the confluence of Fed political risk and rate policy uncertainty will affect asset allocation and valuation. With market participants now treating the Fed Chair nomination process as central to interest rate paths, fixed income (especially intermediate and long-duration Treasuries) remains under pressure. Inflation expectations appear sticky, and safe haven assets like gold and silver are benefitting, even while long yields rise (reflecting term premium increases and diminished confidence in imminent dovish policy).
Finally, this environment suggests elevated tail risk: if political pressure grows and the DOJ probe results in charges—or even further public confrontation—investor confidence in U.S. institutional norms could be compromised. That could increase risk premia broadly, weighing on equities and long-term fixed income alike.
Supporting Notes
- The 10-year U.S. Treasury yield rose to about 4.23%, a four-month high, following Trump’s comments about Fed Chair succession and key economic data.
- President Trump signaled that Kevin Hassett may not be nominated to replace Jerome Powell, boosting odds for Kevin Warsh as next Fed Chair.
- Jerome Powell disclosed that the DOJ has issued subpoenas and threatened criminal charges related to his Senate testimony about a $2.5 billion Fed buildings renovation project.
- Multiple Fed officials and Senate Republicans defended Powell and Fed independence, including Sen. Thom Tillis, who said he would oppose any Fed nominee until the legal matter is resolved.
- Micron’s stock surged (~8%) after a board director bought ~$8 million worth of shares, part of broader strength in chipmakers; software stocks such as AppLovin, Palantir, and Workday lagged.
- LPL Financial reported that the software-to-semis ratio is heavily oversold and approaching long-term support zones, indicating potential for a near-term rebound for software relative to semis.
- Gold hit a record of over $4,600/oz, silver up, while the U.S. dollar weakened slightly, reflecting safe-haven demand amid Fed independence concerns.
- Stock indexes (Dow, S&P 500, Nasdaq) posted small losses across the week (<1%), with tech underperformance offsetting chip strength.