Market Insights

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By Dan Moskowitz, CFP® President and Chief Investment Officer

Dear Clients,

I hope this note finds you enjoying the summer with friends and family.

Thoughts on Federal Reserve Chair, Kevin Warsch:

Kevin Warsh has now been in the Fed chair's seat for a few months, and he's made clear he intends to run a different playbook than his predecessor. Where Jerome Powell leaned heavily on forward guidance to steer expectations, Warsh's Fed has pulled back from that approach, preferring to let incoming data speak for itself. The result has been four straight meetings holding rates at 3.5%–3.75%, alongside signals that a hike is still on the table if inflation — aggravated by the Iran conflict — doesn't cool. For markets accustomed to a Fed that telegraphed its every move, this is a genuine regime change, and we expect it to keep volatility elevated as investors relearn how to read this Fed. Regardless of what the Fed does or doesn’t do it seems like bond market participants aren’t going to wait around to see what happens. They have moved rates higher on their own in anticipation of continued inflation caused by the enormous AI spend (not abating anytime soon) and higher energy prices (more temporary, but subject to the disruptions in world oil flows).

A Note on AI-Related Capital Spending:

The other theme occupying a lot of our attention is AI-related capital spending, and specifically how much of it is being financed circularly — chipmakers, cloud providers, and AI startups investing in and lending to one another in ways that flatter each other's growth numbers without a clear line of sight to what the ultimate return on all that spend will actually be. John Liu put it well at our recent investment committee meeting: "they are building a Ferrari to deliver the mail." It's a useful image for where we think discipline is warranted — impressive engineering, uncertain economics — and it's shaping how we're thinking about position sizing in the space.

As always, please don't hesitate to reach out with questions.

Dan Moskowitz

Disclosure

• Chatham Wealth Management is registered as an investment adviser with the SEC. SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the adviser has attained a particular level of skill or ability.

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