Could Hot Jobs and Kevin Warsh Equate to Panic Fuel for the Market?

The hot jobs number really upset the markets in a shocker of a session last Friday. And as investors look to the SpaceX IPO landing this coming Friday, questions linger as to how investors will start feeling going into next week. If it’s not a hotter jobs number and the potential to set the stage for higher interest rates amid lingering inflation, perhaps it’s the haze of uncertainty that comes with having a new Fed chair. Fed chair Kevin Warsh isn’t Jerome Powell.

He might be a bit more unpredictably hawkish. Or maybe not. Time will tell. Either way, I think there’s a bit of uncertainty that comes with Fed meetings with a new man at the chair. We don’t quite know how the man will communicate things, and, of course, he’s being put into a rather tough situation.

Getting past the first-meeting jitters

Once we get past those first meeting jitters (and maybe second and third ones), I think there’s no sense in getting nervous about Kevin Warsh, hot jobs, the rate trajectory, or what the bond market is telling us. At the end of the day, the Fed is going to act like the Fed. It’ll be data-dependent, even as side narratives and “sock puppet” worries float around in the background.

Of course, that’s not to say that every word from Mr. Warsh won’t have the potential to cause even more nail-biting, but, either way, as an investor, it’s worth focusing on the opportunities that come around should markets fluctuate more wildly. Higher rates or not, I think the AI boom is the biggest elephant in the room.

And while Friday’s number might have caused a bit of a crack in the semiconductor and AI trade, I certainly wouldn’t hit the panic button. If you’ve got a parabolic gainer that’s crashing, I don’t think there’s anything that’s all too out of the ordinary. In fact, I think a healthy correction (or crash in the case of parabolic names) is a good thing, especially as investors think about risk rather than just reward or sheer upside momentum.

Parabolic movers look risky, and it’s not because of the Fed

At the end of the day, there’s a speculative appetite in markets, and parabolic moves are just not sustainable over extended periods of time. Does that mean a crash is the only path forward? As Michael Burry and other semi bears place their bets, I’d say there’s a good chance of making money as parabolic pops correct.

But, at the same time, I think there are unknowns to the upside that bears should consider. Most notably, it’s hard to get the timing right, and if you can’t do that with put options, you could still lose big money. My solution is simple: don’t play. Don’t short or go long in the parabolic movers in the semi industry. In due time, maybe there will be a chance to punch a ticket to a long-term position. But, for now, I think there’s just too much jitteriness to score a solid risk/reward, either way. Sometimes it takes a big plunge in the shares of a good company to get rid of the weak hands.

As for the Kevin Warsh situation, I think investors should be prepared for heightened volatility as the first of many meetings takes place. It’ll be fun and interesting, whether it means producing a buying opportunity or an unexpected surge in the same risk-on names that plunged at the hands of the latest jobs number.