SVC-Update
Weekly Recap & Outlook
Overview
No financial advice.
Midweek, the market (S&P 500) briefly printed a new record, crossing the magical 7,000-point mark for the first time ever, even if it only traded above that level for a relatively short period of time.
The most important news this week was Trump’s decision to nominate Kevin Warsh as the successor to Jerome Powell. Markets initially reacted with a sell-off in the S&P 500, followed by a stronger US dollar and sharp declines in commodities such as gold (-13%) and silver (-30%).
Warsh is currently in favor of further, moderate rate cuts. At the same time, he is widely regarded as a strong opponent of “quantitative easing”, aka money printing. It will therefore be interesting to see which policy adjustments he might push for within the FOMC, assuming he ultimately takes office. Before that, he still needs to be confirmed by the Senate.
In my next Premium Subscriber post, I will take a deeper look at why markets reacted the way they did to Warsh’s nomination and how this could shape future market behavior.
In addition, we received several important data releases this week, which I will break down below:
Federal Funds Rate (Previous: 3.75%, Forecast: 3.75%, Actual: 3.75%):
The Fed left the federal funds rate unchanged at the 3.5%–3.75% target range at its January 2026 meeting, in line with expectations. This follows three consecutive rate cuts last year, which pushed borrowing costs to their lowest level since 2022. Governors Stephen Miran and Christopher Waller dissented from the decision, both voting in favor of an additional 25bp cut. Policymakers acknowledged that economic activity continues to expand at a solid pace, while job gains have moderated and the unemployment rate has shown early signs of stabilization. Inflation, however, remains somewhat elevated. The Fed reiterated that future policy decisions will depend on incoming data, the evolving economic outlook, and the balance of risks. During the press conference, Chair Powell emphasized that the US economy is entering 2026 on firm footing and that current interest rates are appropriately positioned to support continued progress toward both of the Fed’s dual mandate goals.
PPI m/m (Previous: 0.2%, Forecast: 0.2%, Actual: 0.5%):
The Producer Price Index (PPI) for final demand rose by 0.5% in December on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. This follows increases of 0.2% in November and 0.1% in October. On an unadjusted basis, final demand prices increased by 3.0% in 2025, down from a 3.5% rise in 2024. The December increase was driven entirely by higher prices for final demand services, which advanced 0.7%. Prices for final demand goods, meanwhile, were unchanged.
SVC Breakdown
USD
Following the recent sell-off in the US dollar, I initially moved to the sidelines to wait for further data confirmation. The nomination of Kevin Warsh, however, provided an opportunity to position long USD, as this developed into a classic sell-the-news event. In addition, I view Kevin Warsh as a competent and credible choice as Powell’s successor, particularly given his stance on quantitative easing. Under his leadership, longer-term yields could potentially move somewhat lower, more on that in my dedicated follow-up post.
From a technical perspective, the DXY remains in an overall bearish structure. Should this structure be broken, fundamental drivers would once again provide strong confirmation for longer-term upside opportunities.
Gold
Even though the sharp sell-offs in commodities have left a bitter aftertaste, further uncertainty could once again create attractive entry opportunities. The key is to wait for the initial reaction at the relevant levels, as acting too early can easily result in catching a falling knife.
US500
Taking a look at the earnings season, the picture has clearly improved. According to the latest estimates, current earnings growth stands at +11.9%, up from a rather disappointing +8.2% just last week.
The zone highlighted in the previous update already offered attractive entry opportunities on Monday. Should we now see a decisive break above the call resistance around the 7,000 level, additional positioning opportunities could emerge.
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Wishing you a successful trading week ahead,
David Gauch
Founder, Gauch Research