Market Thoughts: Feelin’ Alright…?

Joe Cocker’s “Feelin’ Alright?” popped into my head as prosecutors from the District of Columbia launched an investigation into Jay Powell’s handling of the Fed’s headquarters modernization. There is something important to take away from how investors have reacted.

I’ve mentioned before the strength of the U.S. and global economy as we enter 2026. Inflation is sticky, not destabilizing. Growth is supportive. Fiscal and monetary policy are accommodative, favoring the brave. Earnings have been the primary driver of U.S. equity returns, not multiples. That’s good news.

When news broke about the Powell subpoenas, investors reacted as they should have reacted. With the Fed’s independence seemingly challenged, they blinked. The dollar sold off, gold rallied, risk assets wobbled, long dated interest rates rose. And then…

Markets tried to shrug it off. Investors have fourth-quarter earnings to focus on. They’ve ‘learned’ from Liberation Day to take Washington edicts figuratively, at least initially. It’s meant to be theatrical. Headlines to grab attention. Then backed away from to negotiate or placate.

As a repeated tactic, it becomes exhausting. It’s taken less seriously, discounted as distraction. The takeaway? The ability to price left tail policy and geopolitical risk is diminished. Why care until you have to? You’ll never know until it’s too late, so why bother.

That spark—as an offering to animal spirits—is dangerous. Left to fester, it’s corrosive to behavior. When politics is viewed as diversion, investors get back to investing. They do so with a twitchy finger to eject when turbulence is pronounced. That makes for a volatile market.

The Fed’s leadership structure can’t easily be swept away. That said, any presumption an independent Fed is in doubt creates a crack in the foundational integrity of monetary policy. Bedrock.

Jay Powell’s term as Chair expires on May 15th. He can remain on the Board of Governors until 2028, when his Board term ends. If Senators block Fed appointments as this drags on, the Vice Chair may be appointed interim Chair of the Federal Reserve.

The Federal Open Markets Committee (FOMC) sets monetary policy at the Federal Reserve. It’s traditionally chaired by the Chair of the Federal Reserve Board of Governors, today Jay Powell. It doesn't have to be. The FOMC can appoint someone other than the Fed Chair to head it.

Each of the FOMC’s 12 voting members has an equal vote. By design, whoever is confirmed to be the next Federal Reserve Chair can’t unilaterally impose monetary policy. Neither can the Chair of the FOMC. Insert a collective sigh of market relief.

An independent Fed is vital for investors to have the confidence to invest in the United States. Not to mention retain the dollar as reserve currency. Today neither is in doubt. Doubt demands a higher risk premia. U.S. market exceptionalism is the dominant theme. So is global diversification.

Risk assets continue to feel easier to push higher. Seasonality brings inflows to markets as we kickstart the year. Momentum will need to be carried by earnings growth. That’s an observation about support for equity and credit markets alike.

I appreciate ambivalence around poor theatrics. ‘Buy the dip’ is the market mantra. Should policy or geopolitical noise ramp up further, the selloff needed to pull in buyers goes up. First you buy a 3% selloff, then 5%, then 7%. Eventually, the market ‘scaries’ kick in. Skittishness leads to corrections.

Sentiment isn’t primed for a correction. Pullbacks? Absolutely. But remember, sentiment is fickle. We’ve positioned the procyclical risk we’re taking in portfolios to be well-diversified. Holding the risk reins tight. It isn’t a moment to be concentrating big bets. At least, not yet.

Distraction is part of political theatre. It’s important to separate signal from noise. That may prove challenging. Also, uncomfortable. Feelin’ alright…?

“Feeling alright (oh no) / Not feeling too good myself (oh no)…” Joe Cocker