Investigating the Federal Reserve, interest-rate expectations, early earnings season results and a U.S. response to protests in Iran.
Have you heard about this nonsensical internet meme slang where kids say “6-7”? And when they do it, they move their hands up and down like they’re juggling invisible beanbags, smiling and laughing all the way? While likely on its way out now for becoming too mainstream, 6-7 was named the “Word of the Year” by Dictionary.com in 2025, used and abused by kids everywhere to convey, well, nothing, or even worse, total ambiguity.
I feel like financial markets are having a bit of a 6-7 moment right now. In a week that started with the frankly unbelievable news that federal prosecutors have opened a criminal investigation of Federal Reserve Chair Jerome Powell over the central bank’s $2.5 billion renovation of its headquarters in Washington, D.C., markets are rising. And not only rising but surging ahead in the small-capitalization segment of the market. Why? Because it would seem more and more investors believe the Fed will cut interest rates following its Jan. 28 policy meeting.
Smaller companies tend to be more sensitive to interest rates than larger companies because many rely on short‑term borrowing to fund operations. So lower rates can provide a tailwind to small-cap stocks. As expectations for a rate cut have risen over the past six weeks, the Russell 2000 small-cap index has gained over 14% while the S&P 500 has only risen by 2.5%. This surge in prices for small-caps has dwarfed the rise in other market segments in 2026, thanks to growing conviction that moderate inflation data and mediocre employment growth will compel the Fed. And if not, a criminal investigation! 6-7!
In a video posted Sunday night, Fed Chairman Powell said the investigation was a direct result of his struggle with the administration over interest rates: “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” Powell said.
Backlash for President Trump’s move was swift, drawing bipartisan criticism, and it is rumored that even some of Trump’s insiders like Treasury Secretary Scott Bessent are not happy about the move. Jeanine Pirro, the U.S. Attorney for the District of Columbia, said in a post on X that her office had “contacted the Federal Reserve on multiple occasions to discuss cost overruns and the chairman’s congressional testimony, but were ignored, necessitating the use of legal process—which is not a threat.” 6-7!
Add this move to Trump’s efforts to fire Federal Reserve Governor Lisa Cook over unproven allegations that she committed mortgage fraud, and it would seem one of the foundational elements of financial market stability—Fed independence from the White House—is starting to crack. Even though nobody is excited about current mortgage rates, or sky-high education loan and credit card interest rates, it is also true that we walk a tightrope on this topic, because the impacts of the post-pandemic inflation spike are still hard to contain. The Fed sometimes has a tough job when it’s necessary to set unpopular policy to support its dual mandate of stable prices and maximum employment.
And they are not there yet—inflation releases just this week showed mixed results. Producer prices are now showing a 3% year-over-year increase and consumer prices continue to advance at a 2.7% annual rate that is still too high by current standards. While consumer sentiment surveys show improvement, and retail sales in December showed that spending continued at a solid clip, it is hard to reconcile that data with weak employment results. Last week’s report showed only 50,000 jobs added to the economy in December, and an unemployment rate of 9.3% for recent college graduates! There is nothing 6-7 funny about that number, nor the growing anxiety that our economy is grappling poorly with large gaps in fundamental cornerstones like employment, affordability and income equality, which have been masked by a short-term boom in AI demand and infrastructure build.
Earnings season’s kickoff with banks was also a mixed bag, as loan activity, credit quality, net-interest income and trading volume varied among those reporting. But tech saved the day as Alphabet reached a $4 trillion market cap after securing a deal with Apple to power AI features, and chip stocks rallied on an optimistic outlook from the likes of Taiwan Semiconductor. Notably, the White House and several governors are aiming to compel PJM Interconnection, a major mid-Atlantic power grid operator, to hold an auction for tech companies to fund and build new power plants. The goal is to meet surging AI-driven demand without raising residential utility bills.
Meanwhile, the uprising in Iran continues, and President Trump has responded aggressively to the government by cancelling all meetings with Iranian officials, warning of “very strong actions” if Iran continues to execute violence against protesters and encouraging protesters to take over their institutions. The president walked that back a bit in the last few days, saying the U.S. might hold off on attacking Iran but he is watching events closely.
Oil prices and safe-haven assets have been swinging around in response to these developments (not to mention U.S. involvement in Venezuela)—in general, the escalation of geopolitical risk is on the market’s mind for sure in 2026. The other elephant in the room remains the eagerly anticipated and potentially consequential Supreme Court decision on the legality of President Trump’s tariffs, which is still yet to arrive and will surely be market moving.
This long weekend, we honor the legacy of Dr. Martin Luther King Jr. One of my favorite of his many inspirational quotes is “faith is taking the first step even when you can’t see the whole staircase.” I love that sentiment in so many contexts, but as we navigate challenging news cycles, destabilizing world events and charged rhetoric that confounds and confuses us, having a dream of where you want to go and making plans to get there is the only way forward. Whatever your dreams are, we look forward to helping you put the plans in place to get there, with the humility of knowing none of us can see the whole staircase. Even if there are curves and steep inclines, we must keep climbing, as progress only comes with perseverance.
Thank you for your interest in our investment commentary, and if my children are still reading this, your mom has now officially made 6-7 uncool, so please stop saying it.
Written by a human.