U.S. stocks edged lower on Friday, with all three major indexes struggling as investors weighed the potential leadership shift at the Federal Reserve. The Dow Jones Industrial Average fell close to 1%, while the S&P 500 lost around half a percent and the Nasdaq Composite dropped more than 0.5%, capping a choppy end to January trading.
The cautious tone comes as markets digest reports that Kevin Warsh could be replacing Jerome Powell as Fed chair, a development that adds new uncertainty to the interest-rate outlook. A firmer dollar and a pullback in gold and silver from recent highs also signaled a shift in positioning, as traders reassessed how monetary policy, inflation risks, and political pressure on the Fed may intersect in the months ahead.
Market Movers:
- SanDisk (SNDK) +19%: Shares surged after the company posted a blowout quarter, with revenue jumping sharply year over year on booming data center demand. Strong guidance and an extended joint venture agreement reinforced confidence that AI-driven storage demand still has room to run.
- Deckers Outdoor (DECK) +12%: The footwear and apparel maker rallied on record quarterly profit and revenue, fueled by continued strength in HOKA and UGG. Management raised its full-year outlook, signaling that brand momentum and pricing power remain intact despite margin pressures.
- Lumentum (LITE) +10%: Shares advanced ahead of earnings after an analyst price-target hike pointed to improving margins and AI-related optical networking opportunities. Optimism around long-term growth helped offset concerns about near-term capacity constraints.
- Verizon (VZ) +7%: The telecom giant climbed after a strong earnings beat and upbeat subscriber outlook, driven by better-than-expected postpaid phone additions. A dividend increase and a sizable share repurchase plan added to the positive reaction.
- Tesla (TSLA) +2%: Tesla edged higher amid speculation about deeper ties across Elon Musk’s companies, including potential combinations involving AI and space-based infrastructure. Investor enthusiasm around Tesla’s expanding AI ambitions helped support the stock despite broader market weakness.
- PennyMac Financial (PFSI) -35%: Shares plunged after earnings missed estimates, with margin compression and competitive pressures weighing heavily on results. Concerns about prepayments, delinquencies, and industry overcapacity overshadowed management’s longer-term efficiency initiatives.
- Schneider National (SNDR) -8%: The trucking and logistics firm slid after a quarterly miss tied to softer intermodal demand and higher operating costs. A cautious full-year earnings outlook reinforced worries about freight market recovery timing.
- KLA (KLAC) -8%
The semiconductor equipment maker fell despite beating earnings and revenue expectations, as investors focused on softer free cash flow. Muted enthusiasm for guidance suggested the bar remains high for AI-linked chip supply chain names.
Fed Uncertainty Takes Center Stage
The prospect of Kevin Warsh leading the Federal Reserve added fresh volatility to markets already sensitive to rate expectations. Investors are trying to gauge whether a leadership change would tilt policy more dovish under political pressure or maintain a cautious stance amid lingering inflation risks.
That uncertainty helped lift the dollar and push long-term Treasury yields higher, creating headwinds for equities, particularly growth and technology stocks that are more sensitive to rate assumptions. The shift in rate expectations also contributed to profit-taking in precious metals, which had recently surged.
AI Trade Faces a Reality Check
Beyond macro policy concerns, the broader AI trade continues to face a more selective phase. While companies tied to infrastructure and data demand, such as SanDisk and Lumentum, drew strong interest, other tech segments remain under pressure as investors question spending levels and competitive disruption.
Software and semiconductor-related names have seen more volatile reactions to earnings, with the market rewarding clear revenue acceleration and punishing any sign that AI investment may outpace near-term returns. This dispersion underscores a transition from hype-driven buying to fundamentals-driven stock picking.
Policy and Trade Tensions Add to the Mix
Geopolitical and trade headlines added another layer of caution. Renewed tariff threats and cross-border trade tensions raised concerns about supply chains and global demand, particularly in the industrial and transportation sectors. Meanwhile, political wrangling in Washington over government funding kept the risk of a temporary shutdown in play, contributing to a broader risk-off tone. Together, these factors reinforced the market’s defensive posture into the final trading sessions of the month.
Looking Ahead
Investors will be watching closely for further clarity on Fed leadership, the path of interest rates, and how quickly markets settle on a new policy narrative. Upcoming economic data and additional earnings reports will be critical in determining whether January’s volatility extends into February. At the same time, the AI theme remains a powerful but more scrutinized driver of market direction. Companies that can demonstrate tangible returns on AI investments may continue to attract capital, while those falling short of elevated expectations could face sharper swings as sentiment stays fragile.