Squawk on the Street 2ND Hour 2/2/26

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This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com/marketupdatepodcast or find Schwab Market Update wherever you get your podcasts.

Sara Eisen (0:57)

Good Monday morning. Welcome to Squawk on the Street. I'm Sara Eisen with Carl Quintanilla and David Faber. We are live as always from Post 9 of the New York Stock Exchange. Coming up this hour, markets and market participants still reacting to President Trump's pick for Kevin Warsh to be the Fed chair. We're gonna talk to two experts on opposite sides. One who thinks Warsh was the weakest of the final four and one who rates the pick as nine out of 10

Plus, Disney stock now down sharply as it kicks off another big week of earnings results this morning. Quite a turn. We'll talk about the takeaways as reports swirl around Bob Iger's potential successor. And we are watching Oracle this morning after the company said it would raise tens of billions of dollars to build out AI capacity. We'll talk about what that means for shareholders. Another turn in the stock. That one is higher. But guys, on the Warsh front, David, you always ask me about the size of the balance sheet. So we're gonna dive into reaction in the markets and the balance sheet. Just want to show you what's happening with some of these moves in precious metals, for instance, and what's happened just over the last week or so. Major liquidation, sell-off mode for gold, for silver, which is quite dramatic. A lot of the sort of leverage positions coming off here. Bitcoin has sold off. I mean, this is just a one-week chart, which shows you a big dip. Is it the Warsh pick? Is it something else? You know, we don't know exactly, but let's just show you what's going on with the balance sheet. So when the Fed expands its balance sheet, right? It's printing reserves to buy bonds and pushing money into riskier assets. That's basically what an expansion of the balance. It's the Fed injecting liquidity. And so this is the long-term balance sheet. First went up during the financial crisis, right? To make things easier and boost liquidity during that time really spiked again during COVID when the Fed and other central banks were trying to save the world after we were frozen. And they've been trying to trim the balance sheet, right? It's come down lately. But if you zoom in and actually look at what's happened this year, so we've gone, as you see, $9 trillion at the peak to $6.5. This year, actually, the balance sheet is rising again. Is that a coincidence that in January, we had all these crazy geopolitical headlines and all these perceived risks? And every asset outperformed in the month of January. I mean, really, we saw stocks. And besides Bitcoin, gold and silver and bonds, they all actually did well in January. So correlation or causation, here's the asset price performance in January. Silver, up 11% gold. Now, these were continuations of longer-term trends that we've seen in recent months. But again, pretty decent month for so-called liquidity trades. That's stocks, that's tech stocks, except for the Bitcoin, I would say, which is down 11%.

And the dollar, also weakness, tends to happen when balance sheets expand. So with Warsh, there is a perception, and he has said, as recently as November, in a Wall Street Journal op-ed, that the balance sheet should shrink to lower interest rates. He has argued before that it's a distortion of financial assets. And you can very well argue that, that it's pushed all these assets into riskier parts of the curve and distorted it. However, if you're talking about shrinking balance sheets, that's ultimately could be a way to tighten policy and would mean some digestion period here, if that's ultimately what he wants to do.

Carl Quintanilla (4:18)

Well, if there's a true correlation, the way you're pointing it out, it wouldn't mean good things for a lot of these assets then if he's really going to significantly decrease the size of the Fed's balance sheet, right?