A Good Family Fight at the Fed

Kevin Warsh's first full month succeeding Jerome Powell as chairman of the Federal Reserve was an eventful one. Presiding over the mid-June FOMC meeting, he caught investors off guard with his refrains that the Fed's commitment to price stability (i.e., bringing down inflation) was "unanimous and unambiguous."

While the Fed kept benchmark interest rates unchanged, the statement was much shorter than what markets had grown accustomed to, giving little in the way of forward guidance. Warsh didn't contribute to the Fed's published economic projections, consistent with his criticism of the Fed's ability to forecast that far into the future. But that didn't stop others from sharing their expectations, and the shift from interest rate cuts to hikes was clear.

Warsh doesn't expect his position as chairman to simply supersede what the rest of the committee thinks. At the recent Sintra central banking conference, he said he takes the views of his fellow FOMC members "very seriously" and wants them "to have a good family fight when we meet in four weeks." "When we get into that room and shut the door, we're going to have a good debate."

Overall, there's a lot we don't know about where this Fed will take investors and the economy. As it moves away from offering forward guidance, investors will have to wait for the Fed's "good family fight" to learn more.

Capital Markets Make History

Thanks to sweeping, long-term advancements in technology, business investment has skyrocketed, as tech giants have poured billions into securing computing power. That's not a new development, but just where that money is coming from is starting to change. With current cash flows struggling to keep pace and AI capex projections continuing to grow, companies are increasingly turning to public markets to fund their ambitions.

June saw the equity markets break out into a capital-raising frenzy, as nearly $134 billion was raised in the month alone. That capped off a record-breaking first half of the year, where U.S. equity issuance hit a staggering $280 billion.

The month was defined by two landmark deals: SpaceX's $86+ billion initial public offering and Alphabet's $85+ billion in secondary share sales, though there were many other technology companies issuing shares in multi-million and billion-dollar deals. Unlike some of the risk-taking exuberance seen in the second half of 2020 and 2021, companies and their investors have a good idea where these funds will be directed, with $3.4 trillion in hyperscaler capex projected through 2029.

Demand for these shares has remained robust, but there comes a point where too much supply could weigh on markets as investors decide what to allocate their limited pool of capital toward. It's too early to say if we've reached that point — but tech & AI-sensitive sectors did underperform the broad market in June.

Market Recap

Macro

•   The United States and Iran signed a memorandum of understanding, opening official negotiations on ending military conflict, reopening the Strait of Hormuz, Iran's nuclear policy, sanctions relief, and a reconstruction fund.

•   Kevin Warsh announced five taskforces around the Fed communications policy, its balance sheet, data sources, as well as its frameworks on inflation and jobs in an age of AI.

•   Oil prices declined an additional 20.4% to $70/bbl, near where they were at the start of the conflict.

•   The Consumer Price Index rose 0.5% m/m in May, the third consecutive elevated reading driven by the increase in energy prices.

•   Gold briefly fell below $4,000/troy oz for the first time since November 2025, before slightly rebounding to end the month.

Equities

•   The S&P 500 finished the month 1% lower at 7,499, weighed down by AI-sensitive stock underperformance.

•   Value stocks outperformed growth stocks by 5.0 percentage points, in what was the sixth month of the last eight where the spread between these groups was at least 4 percentage points.

•   Small cap stocks beat large cap stocks by 4.2 percentage points, the most since August 2025.

•   June saw $134 billion in equity issuance, 57% more than the prior single-month record.

Fixed Income

•   The 2y10y Treasury yield curve spread narrowed from 43 basis points to 29 basis points in bear and twist flattening moves, as investor expectations for interest rate hikes rose.

•   The 10-year Treasury term premium fell from 0.69% on June 10 to 0.47%, its lowest level since April 2025, as renewed confidence in the Federal Reserve helped ease monetary policy concerns.

•   Beginning the month at 2.57%, High Yield bond spreads widened to as much as 2.82% on June 26, before ending the month at 2.70%.

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