Why Warsh May Let Markets Tough It Out

Summary

Mike Wilson analyzes new Fed Chair Kevin Warsh's first meeting and the shift toward inflation credibility. He warns of a near-term liquidity-driven equity headwind into July, but maintains that an earnings bull market will eventually push stocks higher.

• Warsh emphasized the inflation mandate and moved away from forward guidance, a healthy shift.
• The S&P 500 to gold ratio rose 40% since Warsh's nomination, showing market confidence.
• Near-term equity risk is liquidity tightening, not rate hikes or uncertainty.
• Balance sheet support is fading: reserve management program down ~75%, Treasury buybacks halved.
• Accelerating lending growth further drains liquidity, creating a headwind into July.
• Choppy or corrective equity action is expected before the earnings bull market resumes its upward trend.