LIVE MARKETS-Jackson Hole looms as investors size up the new Fed

The U.S. 10-year Treasury yield US10YT=RR has climbed around 40 basis points since President Donald Trump announced on January 30 that he would nominate Kevin Warsh as Fed chair. Much of the move has been driven by a sharp rise in real, or inflation-adjusted, yields as investors priced in a more hawkish policy backdrop, according to Stifel equity strategist Thomas Carroll.

That makes Warsh's Jackson Hole speech on Friday a key test for markets and an early window into how the new Fed plans to approach inflation and rates.

Stifel's base case is that Warsh acknowledges continued progress on inflation while signaling no urgency to cut rates. Carroll argues that 3% core inflation may effectively be the new 2%, with persistent services inflation, ongoing AI-related capital spending and war-related disruptions keeping price pressures elevated.

A relatively dovish message could weigh on the dollar, but Carroll does not expect much relief for longer-dated Treasury yields. His view is that higher-for-longer rates, elevated 10-year yields and continued AI-driven capital raising will keep financial conditions tight and pressure equities.

Against that backdrop, Stifel favors sectors that tend to benefit from elevated rates, including energy, banks, insurers, semiconductors, materials and diversified financials.

However, a hawkish surprise from Warsh could change the market leadership picture. In that scenario, Carroll expects investors to gravitate toward more defensive groups, including healthcare, utilities, consumer durables, household products and staples retailers.