Oil Crashed. Markets Are Flying. The New Fed Chair Meets Tomorrow. Don’t Get Too Comfortable.

Your gas was $4.07 a gallon on Sunday.

That number is about to fall. Maybe to $3.50. Maybe lower. Because the US and Iran ended their war this weekend, oil fell off a cliff, and when oil falls, gas follows within a couple of weeks.

This morning Wall Street is throwing a party. The S&P 500 is up. The Nasdaq is up bigger. European stocks hit an intraday high they haven’t seen since before the war started. Oil is below $81 a barrel. It was $126 in March. This is a genuinely big deal.

But here’s what nobody at the party seems to be thinking about. Wednesday at 2 pm Eastern, the brand new Fed chair makes the first rate decision of his career. His name is Kevin Warsh. He once said, on the record: “Inflation is a choice, and the Fed must take responsibility for it.”

Hold that thought.

What Just Happened With Iran

The US and Iran signed a memorandum of agreement Sunday. Formal signing happens Friday in Switzerland. The Strait of Hormuz, which carries roughly 20% of global oil supply, is being reopened.

At the peak of the conflict, oil touched $126. Gas hit $5 and above in parts of the country. The average American was paying 36% more to fill their tank than before this war started. That pain is reversing, fast.

Here’s Why This Is Actually A Fed Story

The May CPI reading, the one that scared everyone last week, came in at 4.2% year over year. That number looks terrible on the surface. But economists who actually broke it down found that energy drove more than 60% of the monthly increase. Not wages. Not rents. Not groceries. Oil. Gas. The Iran war, sitting inside the inflation numbers like a ticking clock.

Core CPI, which strips out food and energy, is running at 2.9%. That’s not that far from the Fed’s 2% target. The Iran deal just solved the Fed’s biggest problem without the Fed doing anything at all.

Now Meet Kevin Warsh

Kevin Warsh was sworn in as the 17th Fed chair on May 22nd. Tomorrow is his first FOMC meeting. Wednesday at 2 pm is his first rate decision.

Nobody expects him to change rates this week. The CME FedWatch tool shows a 97.4% chance rates stay right where they are, at 3.50 to 3.75%. That part is not the story.

The story is the dot plot.

The dot plot is a chart where every Fed member marks where they think rates should go over the next couple of years. A hawkish dot plot, meaning fewer cuts projected, sends bond yields up and growth stocks down. Dovish does the opposite.

Warsh has a reputation. Bank of America’s economist Ethan Harris said last week that the collective view inside the FOMC has become “more hawkish” heading into this meeting. JP Morgan’s chief investment strategist said there will “likely be an explicit move away from a bias toward easing to a neutral stance on rates.” Trump picked him to cut rates. At the swearing-in ceremony he said, “I had a rotten head of the Fed, and now I have a great head of the Fed.” Warsh’s first public remarks as chair: monetary policy independence is “essential.” Make of that what you will.

The Irony Nobody Wants To Say Out Loud

Warsh walks into Wednesday’s meeting with old data. The 4.2% CPI. The hot jobs report. The PPI at 6.5% annually. All of it collected before the Iran deal. Before oil crashed 35%. Before gas started heading back to something normal.

If Warsh uses Wednesday to signal who he is, to prove he won’t be pushed around, he could shift the dot plot hawkish right at the moment when the inflation data is about to get a lot better on its own. That would be like slamming the brakes as the highway opens up.

The alternative is that Warsh looks at the oil crash, figures the inflation problem is solving itself, and holds steady with patience. Markets would love that. The rally continues into summer.

Nobody knows which Warsh shows up Wednesday. He’s never done this before. The data is changing in real time. And the dot plot he releases will be the first honest signal of what the next two years of US monetary policy actually look like.

The rate decision itself is irrelevant. The dot is everything. 2 pm Wednesday.

What This Means For The LENS Index

The LENS Index (Large-Cap Equity Narrative Strategy) launched on May 22nd, the same day Warsh was sworn in. We run a concentrated portfolio of large-cap companies where the dominant market narrative is provably wrong. Six positions open. Thirty slots available. Most of the portfolio is still in cash.

Here’s where things stand right now.

Four of those six open positions are directly in the crosshairs of whatever Warsh says Wednesday. The Iran deal already removed a macro headwind that was threatening two of them. If the dot plot confirms patience, those two recover and the LENS alpha keeps building. If Warsh goes hawkish, it doesn’t break either thesis, but it pushes the price targets further out.

Two of the six don’t move on Warsh at all. Their thesis breaks are about product cycles and competition, not interest rates. Wednesday is noise for them.

The 69% cash in the portfolio is not idle. It’s dry powder waiting for the dot plot to create an entry the market hands us. We’re not naming the positions here. You know where to find that.

The Bigger Picture For The S&P 500 & The Nasdaq 100

Both indices are sitting near all-time highs right now as you read this. The Iran deal wiped out weeks of geopolitical risk premium in a single weekend. The Nasdaq had fallen 6% in the five days before the deal. It’s clawing all of that back this morning.

But both indices are stuffed with the same AI-heavy tech names that are most sensitive to what Warsh says Wednesday. Ten stocks now represent nearly 40% of the entire S&P 500. All ten have some connection to AI. A hawkish dot plot hits those ten names hardest and drags the rest of the index with them. A dovish one leads the charge to new highs.

The Iran deal put both indices back on the doorstep of all-time highs. Warsh decides Wednesday whether they walk through the door. If he signals patience, there’s a real case for the S&P printing a new closing high before Friday. If he signals tightening, the market doesn’t crash, but it gives back a chunk of today and the ATH waits a little longer.

Either way, the floor is higher than it was last week. The war is over. Oil is cheaper. Inflation is about to fall on its own. Warsh just has to not make it worse.

Disclaimer: We do not hold any positions in the above stock(s). Read our full disclaimer here.