Warsh, Then Repeat

• Warsh served as Fed Governor 2006-2011, is pro-growth and anti-quantitative easing, and is aligned with Treasury Secretary Scott Bessent on policy views
• SaaS stocks are under pressure as new AI models like Anthropic's Cowork threaten to replace traditional software in financial and legal analysis
• Mega-cap technology cash flows have significantly outpaced the broader S&P 500 over the last three years, supporting RiverFront's overweight position in hardware over software

Market Summary: Warsh Fed Appointment and Technology Sector Outlook

Key Developments

Kevin Warsh Fed Chair Appointment

President Trump has appointed Kevin Warsh as Federal Reserve Chair, pending Senate confirmation. Warsh previously served as Fed Governor (2006-2011) and worked at Morgan Stanley and Duquesne. The announcement triggered initial volatility in the US dollar, bond yields, and precious metals markets.

Warsh's Profile:

• Experienced financial crisis manager with pragmatic approach
• Critical of quantitative easing and Fed "overcommunication"
• Pro-growth, deregulation advocate aligned with Treasury Secretary Scott Bessent
• Views AI as productivity-enhancing and disinflationary
• Expected to maintain Fed independence while shaking up policy communication

Technology Sector Analysis

"SaaSpocalypse" Underway

Software-as-a-Service (SaaS) stocks face significant selling pressure as new AI models threaten traditional software incumbents. Anthropic's upgraded Cowork AI assistant announcement highlighted displacement risks in financial and legal analysis software.

Investment Implications:

• Analysts favor hardware over software in technology sector
• Semiconductor companies viewed as primary AI winners
• Mega-cap tech cash flows significantly outpacing S&P 500 over three years
• Recommend "picks and shovels" providers over AI model developers
• No significant AI spending slowdown expected in 2026

Market Outlook

Analysts view recent volatility as likely brief and shallow, similar to April's "Liberation Day" correction and rebound. Current market positioning remains constructive with overweight exposure to hardware and physical infrastructure. The firm expects the global rotation into value and cyclical stocks to continue under Warsh's anticipated pro-growth policies.

Bottom line: No fundamental strategy changes recommended despite near-term volatility.