Lots of Interesting Stuff Today

There are days when the theme for my piece is apparent.  There are others when there are a series of interesting tidbits, from which I try to choose the most important.  Today there are quite a few, and I’m having trouble choosing whether to focus on the Fed, UMich sentiment, or another vertical rally.  I’ll try my best with each.

Just before I started to write today, an important piece of news broke about the Fed.  The Attorney General announced that she “has directed [her] office to close our investigation” into the cost overruns surrounding the renovation of the Federal Reserve building in Washington, D.C.  It is being widely, and accurately, reported that the Justice Department has dropped its probe into Chair Jerome Powell.  But read that last sentence carefully…

Source: X

Although the sub-headings on many, if not most, of the headlines imply that this paves the way for nominee Kevin Warsh to replace Powell promptly, I’m not as convinced that it actually does so.  Note that she reserves the right to restart a criminal investigation.  That removes the immediate jeopardy for the sitting Chair, but not permanently.  Furthermore, the main obstacle to Warsh’s approval is Senator Tillis’ stated position that he will not approve any nominees until the investigations into both Powell and Fed Governor Lisa Cook are ended.  Thus, while one obstacle has seemingly been cleared, it seems insufficient to assuage that key Senator’s concerns.  And if I were advising the Chair (he’s a lawyer and does not need my amateur opinion), I would tell him not to abandon his post on the Board of Governors anytime soon.

For now, though, the market does not seem to be concerned with subtleties.  Stocks took a leg higher after the news, and year-end Fed Funds futures raised their probability for a year-end cut from 22% to 39%. 

Shortly before the AG’s announcement, economics junkies were focused on the final report on April Consumer Sentiment from the University of Michigan.  Guess what?  It managed to beat expectations! 

Unfortunately, even after improving to 49.8 from the preliminary 47.6 and beating the 48.5 economists’ consensus.  While it is indeed an improvement, it still set a new low for that measure.  The prior nadir was 50.0 in May 2022; before that, it was 51.7 in May 1980.  Most of the other measures also improved from the preliminary, with Current Conditions going to 52.5 from 50.1, Expectations to 48.1 from 46.1, and 1-Year Inflation falling to 4.7% from 4.8%, but 5-Year Inflation rising to 3.5% from 3.4%.  The survey period ended on April 20, and apparently the extra 13 days were enough to improve the consumer mood somewhat, even if it remains generally quite sour. 

UMich Consumer Sentiment, Monthly Data (white), with 12-Month Moving Average (magenta)

Source: Bloomberg

Nonetheless, at the risk of seriously burying the lead, stocks have accelerated as the morning proceeded.  A lackluster pre-market was given a boost by hopes for another round of peace talks, then got subsequent bumps after the Pirro/Powell story, confirmation that talks might actually be occurring, and on a story that Alphabet’s Google division (GOOG, GOOGL) would be investing $40 billion into Anthropic.  We’re back to a mindset where heavy AI spending is a good thing, as evidenced by the soaring semiconductor sector.

Tech stocks once again got off to a fast start after the second straight “beat and raise” by a major semi manufacturer.  We noted Texas Instruments’ (TXN) eventual 19.4% rally yesterday, and today we have an even more stunning 22.7% jump (at noon EDT) in Intel (INTC).  Remember, this company was all but left for dead in recent years and received an $8.9 billion government investment in August 2025.  That is working out well for taxpayers, to say the least. 

The rally in INTC is propelling the Philadelphia Semiconductor Index (SOX) to an even more unprecedented 18-day rally.  While we were concerned that expectations for key companies in that index were set too high, we also cautioned:

… if key components of SOX can continue to deliver positive surprises in the manner that TXN just did, it becomes much more difficult to bet against it. 

But on a day where Nvidia (NVDA) can rally by 5%, putting it on pace for a fresh record high – despite, or perhaps because, it will not be reporting earnings for several weeks – it is quite understandable why we see stocks continuing their ebullient mood.  If the “big dog” has joined the party, it has no choice but to continue.