Bob Doll says bull market needs Warsh support as Fed holds at 3.6%

The stock market's winning streak depends on Federal Reserve Chair Kevin Warsh maintaining his current policy stance, according to Crossmark Global CEO Bob Doll.

The "high-risk" bull market in U.S. equities requires continued support from Fed Chair Kevin Warsh to sustain its momentum, said Bob Doll, CEO at Crossmark Global Investments.

"High valuations, potentially lower earnings and a less accommodative Fed create a fragile setup for equities," Doll said. "Warsh's approach will determine whether this bull market continues or stalls."

The Fed under Warsh, who took office May 22, has held its key interest rate at about 3.6% while focusing on bringing inflation down from a three-year high of 4.2% in May. Wall Street investors expect the central bank could hike rates as soon as September to roughly 3.9%, according to market pricing. Nearly half of the 19 Fed policymakers signaled support for higher rates at the June 16-17 meeting, while eight favored no change and one penciled in a cut.

Warsh has emphasized the Fed's political independence and commitment to its 2% inflation target, telling a central bank conference in Sintra, Portugal, that "we're going to deliver price stability." He declined to provide forward guidance on the timing of any rate moves, consistent with his opposition to signaling future policy steps.

The stakes are significant for equity investors. Any hawkish shift from Warsh could trigger a sell-off in a market already trading at elevated valuations, Doll said. The next Fed meeting in September will be a key test of whether the central bank's tightening bias intensifies or moderates as inflation shows signs of peaking following the Iran peace agreement's impact on gas prices.

Doll's warning comes as the economy presents mixed signals. Hiring has picked up in recent months, with the unemployment rate holding at a low 4.3%, while inflation expectations have moderated in both surveys and bond prices. Warsh has said artificial intelligence could expand the economy's productive capacity over time, potentially reducing inflationary pressures — though economists caution those effects may take years to materialize.

The Fed chair has set up five task forces to study a range of issues including AI and its impact on productivity, describing the current period as "as exciting a time and also as consequential a time to be a central banker that I can think of at any point, maybe outside of a crisis, in my adult lifetime."

For equity investors, the September meeting represents a critical inflection point. If the Fed delivers a rate hike, it would mark the first increase under Warsh and signal a more aggressive tightening cycle than markets have priced in. If it holds steady, it could fuel further gains in a bull market that Doll describes as increasingly dependent on central bank support.

The bond market has already begun pricing in tighter conditions, with traders adjusting expectations for the September meeting. Doll's assessment suggests that the margin for error is narrowing for equities, as the combination of high valuations and potential Fed tightening leaves little room for disappointment in corporate earnings or economic data.

This article is for informational purposes only and does not constitute investment advice.