U.S. stocks face a critical test this week as three key events determine whether the rally can resume. Nvidia's quarterly earnings, Federal Reserve Chair Kevin Warsh's debut speech at Jackson Hole, and the release of the Personal Consumption Expenditures (PCE) price index—the Fed's preferred inflation gauge—are all on the calendar. With long-term Treasury yields surging recently and tech stocks pulling back, investors are expected to focus on the latter half of this week for clues about the sustainability of the AI investment cycle and the trajectory of monetary policy.
Last week, U.S. stocks turned lower for the first time in four weeks as the 30-year Treasury yield climbed to its highest level since 2007. The tech-heavy Nasdaq fell 2.1%, while the S&P 500 and Dow Jones Industrial Average dropped 1.4% and 0.9%, respectively. The Philadelphia Semiconductor Index (SOX) plunged 5.5%, underscoring the pressure that elevated interest rates are exerting on high-valuation chip stocks.
Behind the surge in yields: inflation has remained well above the Fed's 2% target for more than five years, and U.S. national debt has surpassed $40 trillion (approximately 55,356 trillion won), compounding fiscal anxieties. U.S. Treasury Secretary Scott Bessent's announcement that the Treasury would at least double the size of its long-term bond buyback program briefly pushed yields lower, but the policy effect was short-lived. A surge in corporate bond issuance by technology companies seeking to fund AI investments has also been cited as a factor amplifying selling pressure on long-duration debt.
First Hurdle: Nvidia Earnings
Nvidia's second-quarter results, due after the market close on August 26, will serve as a critical test of the AI rally's fundamentals. Nvidia has evolved beyond being merely a semiconductor company—it now functions as a barometer for the entire AI investment cycle. As data center investments using Nvidia chips have surged, massive capital has flowed not only into semiconductors but also into power infrastructure, construction, and financial markets.
Recently, Nvidia partnered with six major financial institutions to establish an AI infrastructure financing platform that will mobilize more than $500 billion (approximately 692 trillion won) in third-party capital. This underscores just how enormous the capital requirements have become for corporations and governments building AI data centers.
The market environment has grown more challenging. Rising global long-term yields have heightened concerns about financing costs, rattling semiconductor stocks. Eric Kratz, Chief Investment Officer at Arena Private Wealth, said, "The market is heavily dependent on the AI trade right now, and Nvidia is clearly at the center of it. It has the ability to impact the broader market."
Jay Woods, Chief Market Strategist at Freedom Capital Markets, suggested that if there is a path for the S&P 500 to reach 8,000, "Nvidia will lead the way," and this week's earnings could mark the starting point. Conversely, if the results fail to serve as an upside catalyst, weakness in AI stocks, including semiconductor names, is likely to persist.
The same day, CrowdStrike, Salesforce, and HP are also scheduled to report earnings. After the market close on August 27, Marvell Technology—which designs networking and storage semiconductors as well as custom AI chips—will release its results.
Second Hurdle: PCE Inflation and Warsh's Jackson Hole Speech
The July PCE price index will also be released on August 26. According to a Dow Jones survey of economists, the July PCE price index is expected to have risen 0.1% month-over-month and 3.6% year-over-year. The annual rate would represent a 0.1 percentage point slowdown from June's 3.7%, marking the lowest reading in four months if the forecast holds.
The core PCE price index, which excludes volatile food and energy prices, is expected to have risen 0.2% month-over-month and 3.3% year-over-year. The monthly increase would be higher than June's 0.1%.
Following unexpected declines in July nonfarm payrolls and retail sales, the probability of a rate hike at the September Federal Open Market Committee (FOMC) meeting has fallen below 40%. However, with annual PCE inflation still running well above the Fed's target, concerns about entrenched high inflation remain elevated.
After digesting these data points, market attention will shift to Jackson Hole, Wyoming. The annual economic policy symposium hosted by the Kansas City Federal Reserve Bank runs from August 27 through August 29. Chair Warsh will deliver his first Jackson Hole keynote address on August 28 since taking office.
What investors most want to understand is Warsh's "policy reaction function"—the framework for determining what policy response he will deploy under different economic conditions. Since taking office in May, he has offered few concrete signals about the future policy path. At his post-FOMC press conference, his failure to provide clear policy direction triggered a sharp acceleration in Treasury selling.
Warsh has been gradually phasing out forward guidance, including the dot plot. This has left investors in the position of having to interpret economic data on their own to gauge monetary policy direction, but without any official formula for how the Fed will respond to changing data, complaints about unnecessary confusion have mounted.
Stifel Economics expects Warsh to emphasize his commitment to price stability while avoiding specific guidance on the next monetary policy move. Molly Brooks, U.S. rates strategist at TD Securities, said, "If the message is similar to what we've heard before, the market will likely be disappointed," adding that "the recent long-end Treasury selloff could intensify further."
Conversely, Diraj Narula, rates strategist at HSBC, argued that even if Warsh simply provides a clearer assessment of underlying inflationary pressures, it could help reduce the term premium associated with policy uncertainty.
The Bond Market and the Treasury's Role
This year's Jackson Hole gathering carries added significance because the bond market has been roiled recently. The 30-year U.S. Treasury yield surged last week to its highest level since 2007. Sticky inflation, combined with massive fiscal deficits and Treasury supply pressures, has intensified selling in long-duration bonds.
The U.S. Treasury doubled the size of its long-term bond buyback program to at least $4 billion (approximately 5.5 trillion won) per operation, but the stabilizing effect on markets was fleeting. Treasury supply continues as well. The Treasury is scheduled to auction $69 billion (approximately 95.5 trillion won) in 2-year notes on August 25, $70 billion (approximately 96.9 trillion won) in 5-year notes on August 26, and $44 billion (approximately 60.9 trillion won) in 7-year notes on August 27.
Rising long-term yields also have direct implications for Fed policy. How Warsh positions himself regarding the Treasury's efforts to cap long-term yields is another point of interest. Prior to taking office, he made remarks suggesting that while the Fed should maintain its independence in executing monetary policy, it could cooperate with the Treasury on national debt management.
With U.S. national debt exceeding $40 trillion, questions are being raised about whether this signals a willingness to cooperate with the Treasury on yield suppression to reduce the government's interest burden—and if so, how inflation management would be handled in that scenario.
Joseph Wang, who operates Fedguy.com, expects Warsh to remain tight-lipped about the monetary policy path. He believes that simply emphasizing the 2% inflation target could help bring long-term yields down.
Rate futures markets are pricing in a substantial probability of additional rate hikes this year. The probability of a September hike stands at approximately 35%, with the odds of a hike by December at around 66%. However, given that specific probabilities vary significantly depending on the timing of trades and the instruments involved, these figures are likely to be recalibrated around Jackson Hole.
Two Scenarios for the Market
Ultimately, this week will test whether AI investment and elevated interest rates can coexist. Even if Nvidia demonstrates robust AI investment demand, if the PCE data and Warsh's remarks amplify upward pressure on rates, equities will face headwinds. Conversely, if inflation shows signs of cooling and Warsh bolsters confidence in the inflation response, risk asset sentiment that has been shaken recently could recover.
The market is weighing two scenarios. If data comes in strong, expectations for Fed rate hikes will rise, pushing Treasury yields higher and pressuring tech stock valuations. For the AI industry specifically, higher rates increase financing costs not only for stocks but also for data centers, energy infrastructure, and chip investments. If data comes in weak, rate hike bets would diminish, but concerns about AI demand and corporate earnings could resurface.
Will Sterling, Chief Investment Officer at TritonPoint Wealth, suggested that Warsh may reaffirm a data-dependent policy framework and ask investors to observe the data themselves to determine the direction of rates. Such an approach could increase short-term volatility but also prevents the market from misinterpreting Fed signals as policy commitments.
David Wagner, Head of Equities at Aptus Capital Advisors, said, "There is a lack of clarity in the current policy outlook, and the recent sharp moves in U.S. Treasuries reflect investor confusion. All eyes in the market will be on Jackson Hole."
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