This week presents significant challenges to the stock market's recent rotation, moving away from technology leaders towards laggards and defensive stocks. Two key events will determine its trajectory: Nvidia's upcoming Q2 fiscal results and Federal Reserve Chair Kevin Warsh's keynote address at the Jackson Hole Economic Symposium.
Markets experienced a sell-off last week, primarily driven by the bond market, as the 30-year Treasury yield surged to 5.34%, its highest since 2007. This led to a rotation out of long-duration tech stocks, with semiconductors seeing their worst session, and money shifting into energy, healthcare, and staples. All three major indexes finished the week lower, marking the second consecutive weekly decline for the Dow, which fell by 0.98%.
Nvidia is set to report its fiscal second-quarter results after the market close on Wednesday, August 26. The company guided to $91.0 billion in revenue, with analyst consensus at $91.85 billion. A crucial factor will be the October-quarter guide, where consensus stands at $103.1 billion. A guide below this figure could signal an inflection in the AI capital-spending cycle. Despite beating guidance for thirteen consecutive quarters, the size of these beats has compressed from 22.8% to 4.6%.
Fed Chair Kevin Warsh will deliver his keynote address at the Jackson Hole symposium on Friday, August 28, at 10:00 a.m. ET. While the official theme, "Financial Innovation: Implications for Payments and Policy," doesn't directly address inflation or rates, markets will closely scrutinize his words for any indication on monetary policy. Futures currently price a September rate hike as more likely than a cut, with prediction markets showing a 25-basis-point hike at around 26-28% probability. A hawkish stance from Warsh could challenge the current "Goldilocks narrative" and the market's pricing of roughly two Fed rate cuts by year-end.
Other notable events this week include the release of July PCE inflation data on Wednesday, August 26, at 8:30 a.m. ET, and July durable goods orders. An upside surprise in core PCE, which consensus estimates at 3.3% year-over-year, could further solidify the likelihood of a September rate hike before Warsh's speech. Additionally, annual benchmark revisions to nonfarm payrolls are due, which could reshape the labor-market picture the Fed is considering.
