5 Things to Watch Before the Market Opens Friday

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## Fed Chair Nomination Looms as Markets Brace for Key Economic Data

President Donald Trump has finalized his choice for the next Federal Reserve chair, tapping former Fed Governor Kevin Warsh. This decision arrives as investors digest a mixed bag of economic signals, with stock futures trading lower this morning following a subdued trading session for the S&P 500.

Here’s a breakdown of the critical developments shaping the market landscape today:

### 1. Warsh Tapped for Fed Leadership, Senate Confirmation Eyed

The White House announced this morning that former Federal Reserve Governor Kevin Warsh will be nominated to lead the central bank. President Trump expressed strong confidence in Warsh, stating on social media that he expects him to be “one of the GREAT Fed Chairmen, maybe the best.”

While Warsh’s extensive experience at the Fed and Wall Street’s expectation of his political independence may temper market volatility, his path to confirmation faces potential hurdles. Republican Senator Thom Tillis has indicated he would block Fed nominees until the ongoing criminal investigation into current Chair Jerome Powell concludes, posing a significant challenge to Warsh’s ascension.

Sources close to the White House confirmed Warsh’s presence at the executive mansion yesterday, aligning with narrowing speculation. The other key contenders for the role were reportedly National Economic Council Director Kevin Hassett, current Fed Governor Christopher Waller, and BlackRock’s Rick Rieder. Warsh’s nomination introduces a new dynamic to monetary policy discourse, potentially signaling a shift in the Fed’s approach to inflation, economic growth, and financial regulation. Investors will be closely watching his proposed policies and their potential impact on interest rates and market liquidity.

### 2. Software Sector Enters Bear Market Amidst AI Disruption Fears

The iShares Expanded Tech-Software Sector ETF (IVG) experienced its worst trading day since April, driven by significant post-earnings sell-offs in major software players like ServiceNow and Microsoft. This downturn has pushed the software industry into bear market territory, defined as a decline of 20% or more from recent highs.

Key takeaways from the software sector’s struggles include:

* **Microsoft’s Significant Sell-off:** The tech giant saw its market capitalization plunge by over $350 billion, its steepest decline since 2020. Despite exceeding revenue and earnings expectations in its latest report, concerns over decelerating cloud growth and a muted outlook for operating margins weighed heavily on investor sentiment. This highlights a growing scrutiny of sustainable growth models in the cloud computing space, as the market begins to price in increased competition and potential saturation.
* **ServiceNow’s AI-Induced Volatility:** ServiceNow also faced a sharp decline, underscoring the market’s heightened sensitivity to artificial intelligence disruption. While the company beat earnings estimates, investor anxieties about AI’s potential to reshape the enterprise software landscape overshadowed the positive financial results. This indicates a broader trend where companies must not only demonstrate current financial strength but also present a clear and defensible strategy in the face of rapidly evolving AI technologies.
* **Broader Market Impact:** The woes in the software sector contributed to the underperformance of the Nasdaq Composite, a technology-heavy index. The IVG ETF is on pace for its largest monthly loss since 2008, signaling a dramatic shift in market sentiment from an industry that was once a consistent darling of investors.
* **End-of-Month Rally Potential:** Despite the sector-specific weakness, the broader market indexes are still on track to close the trading month in positive territory, suggesting underlying resilience driven by other sectors or macroeconomic factors.

### 3. Government Funding Stalemate Continues Amidst Political Wrangling

President Trump has backed a Senate proposal aimed at funding most government operations through the end of the fiscal year. This endorsement was intended to avert a partial government shutdown scheduled for early Saturday. The proposed legislation would allocate funds to departments including Education, Defense, Treasury, State, and Transportation.

However, the Department of Homeland Security (DHS) has been conspicuously omitted from this package, a concession to Democratic demands following a recent incident involving federal immigration agents. Senate Democrats have proposed a two-week stopgap measure for DHS funding. Despite the President’s support, last night’s procedural delays in the Senate suggest that a partial government shutdown remains a distinct possibility, highlighting the persistent challenges in achieving bipartisan consensus on fiscal matters.

### 4. Apple Exceeds Expectations, Acquisition Signals AI Focus

Apple reported strong fiscal fourth-quarter results, surpassing Wall Street’s revenue and earnings per share estimates. The technology behemoth also saw robust iPhone and iPad revenue, though it fell short of analyst targets in certain product categories and its services division.

Apple CEO Tim Cook described iPhone demand as “staggering,” with year-over-year revenue growth of 23%. However, he noted that chip supply constraints potentially limited even greater sales figures. This commentary underscores the ongoing global semiconductor supply chain challenges and their direct impact on hardware sales for major tech companies.

In a move signaling a deeper commitment to artificial intelligence, Apple confirmed its acquisition of Israeli AI startup Q.ai. While the financial terms of the deal remain undisclosed, Q.ai’s focus on audio-related AI products suggests potential integration into Apple’s ecosystem of smart devices and services, potentially enhancing features in areas like voice assistants and content delivery. This acquisition positions Apple to further compete in the rapidly advancing AI landscape, particularly against rivals who have made significant investments in AI development.

### 5. Amazon Reportedly in Talks for Substantial OpenAI Investment

A significant development in the artificial intelligence space may be on the horizon, as sources indicate Amazon is in discussions to invest up to $50 billion in OpenAI. This potential investment, if realized, would represent a major strategic alignment between two prominent technology players, even as Amazon has already committed billions to Anthropic, a leading competitor of OpenAI.

The ongoing negotiations, reportedly involving Amazon CEO Andy Jassy and OpenAI CEO Sam Altman, are fluid, and the final investment amount could vary. Such a substantial capital infusion would undoubtedly accelerate OpenAI’s research and development efforts, potentially reshaping the competitive dynamics within the generative AI market. The move also raises questions about Amazon’s multi-pronged strategy in the AI sector, balancing direct investment in a key player with its existing partnerships.

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**The Daily Dividend:**

This week has been a whirlwind of pivotal economic events, from the Federal Reserve’s strategic decisions and a tense government funding standoff to a cascade of corporate earnings reports. Here’s a look at some other notable stories that may have flown under the radar: