Warsh's speech pushed September Fed hike odds to 58%, triggering a bond selloff and a rotation out of tech into consumer, energy, and communication services. The S&P 500 held near 7,712.
The S&P 500 fell 0.25% on Friday after Federal Reserve Governor Christopher Warsh said the central bank still needs to see inflation moving convincingly toward 2% before easing, and that financial conditions do not look restrictive. Traders read the comments as confirmation that the rate pause may be over. September hike odds jumped from about 35% to roughly 58% during the session, traders said.
The 2-year Treasury yield rose more than 10 basis points to about 4.35%. The dollar hit its strongest level since August 19. The S&P 500 settled at 7,711.76, down 19.23 points, and closed on the weak side of a short-term pivot at 7,727.86 that technical analyst James Hyerczyk said could determine near-term direction.
Friday's selling was concentrated in technology and industrials, but buyers rotated into consumer discretionary, energy, and communication services. Consumer discretionary rose 1.69% as a group. Amazon climbed 3.97% after Evercore ISI raised its price target to $355 from $315, citing survey evidence that Alexa AI tools are driving purchases. Domino's Pizza rose 5.40%, Lululemon added 5.05%, Expedia gained 3.30%, and eBay advanced 3.59%. Charter Communications rose 3.57%.
Energy rose 0.59%, led by SLB up 4.22%. Chevron finished higher. Communication services gained 1.56%, with Alphabet up 1.7% and Apple up 1.6%. Financials added 0.34%.
Technology lost 1.29%, with semiconductor stocks taking the worst of it. Marvell dropped 10.28% after guidance raised questions about AI revenue timing tied to Google. Nvidia fell 4.6% one session after jumping nearly 9% on its earnings beat. Lumentum lost 6.39%, Lam Research gave back 5.24%, and Coherent fell 5.48%. Industrials fell 0.96%, led by Comfort Systems USA down 5.96%. Utilities fell 1.14%, materials slipped 0.30%. PayPal was the worst name in the index, down 12.71% after Advent and Stripe ended deal talks, the company said.
The rotation held the S&P 500 together while the Nasdaq gave back Thursday's gains. Hyerczyk said a sustained move above the pivot at 7,727.86 would signal buying, with the record high at 7,816.70 in reach. Below the pivot, the swing bottom at 7,639.01 and the 50-day moving average at 7,562.87 are the next levels traders will watch.
Every employment and inflation report between now and the September 16-17 Federal Open Market Committee meeting either builds on Warsh's repricing or unwinds it. The next data prints carry more weight than any single earnings beat, traders said.
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