Finance
One Fed official may have saved market from another rout. Why John Williams’ remarks matter so much
John Williams, president and chief executive officer of the Federal Reserve Bank of New York, speaks during an Economic Club of New York (ECNY) event in New York, US, on Thursday, Sept. 4, 2025.
David Dee Delgado | Bloomberg | Getty Images
Communication at the Federal Reserve, particularly at the highest levels, rarely happens by accident.
Messages that come out of the top echelon, particularly the chair, vice chair and the powerful New York Fed president, are measured carefully, calibrated between delivering clear ideas about policy without causing undue reaction in financial markets.
That’s why a speech Friday from the current New York Fed leader, John Williams, mattered so much to markets. With his position comes membership in the Fed’s leadership troika, a group that also includes Chair Jerome Powell and Vice Chair Philip Jefferson.
So when Williams gave a nod to the likelihood of a “further adjustment in the near term” for interest rates, investors took it as a message from on high that the leadership is inclined for at least another rate cut sometime soon, likely at the December meeting of the Federal Open Market Committee.
“There is some ambiguity in the phrase ‘near term’ – but its most obvious reading is at the next
meeting,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note.
“And while it is possible that Williams was offering a personal view, signals from the other members
of the Fed leadership troika (vice-chairman, NY Fed president) on key live policy issues are almost always approved by the chair and it would be professional malpractice for him to deliver this signal without Powell’s sign-off,” he added.
Williams’ comments on rates come at an especially sensitive time for the Fed and financial markets.
The policymaking FOMC, normally a consensus-driven group sometimes maligned for lacking diversity of thought, has found itself suddenly divided.
On one side are officials who see policy as still holding back growth and open for adjustment, while the other is represented by those worrying about inflation who see solid economic growth with no need for further cuts, particularly in light of reductions already in the books from September and October.
While Williams provided little insight into the longer-term trajectory of rate expectations, at least in the short term it looks like senior Fed leadership backs a cut.
That’s particularly important to financial markets that have wobbled lately over fears of an artificial intelligence bubble, coupled with ongoing geopolitical concerns and uncertainty over Fed monetary policy.
Stocks briefly rallied Friday, with futures turning around after Williams’ comments caused a market repricing toward the expectation of a rate cut in December. Ongoing concerns about AI tempered the rally, but traders continued to place bets on a December move, assigning a 73% chance of a reduction, according to the CME Group’s FedWatch.
Williams likely saved the market Friday from a bigger selloff with stocks outside of tech mostly firm and supporting the major averages on the prospects of lower rates. The major benchmarks were hit hard Thursday and investors feared another big slide was coming on Friday.
S&P 500, 5 days
“Williams intervention came after several other Fed speakers indicated reservations about [December] but drew back from categorical statements, perhaps indicating they recognize the [December] struggle was turning into a crisis of governance at the Fed and see the need to give Powell space to make the call,” Guha said.
To be sure, other speakers weren’t as enthusiastic as Williams.
Regional Fed presidents Susan Collins of Boston and Lorie Logan of Dallas both voiced hesitation about further cuts. In a CNBC interview, Collins expressed concern about inflation. Logan was even more hawkish, saying she wasn’t even sure she would have voted for cuts the previous two cuts. Collins votes this year on the FOMC, while Logan gets to vote in 2026.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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