What Happened Last Week
- Jackson Hole: Chair Warsh affirmed the Fed’s commitment to the battle with inflation, easing pressure on long-end yields.
- Nvidia (NVDA) Guidance: NVDA expects a 70% jump in revenue in its next fiscal year, suggesting that AI-related growth is accelerating, not slowing.
- Tech Leads: NVDA’s report and better-than-forecasted results from several other software names powered tech stocks and indices higher.
What We’re Watching This Week
- Earnings Week Eight: Earnings season all but concludes with the reports from Broadcom (AVGO) and other tech and retail names.
- Yields: Follow-on price action in bonds will be watched closely this week as the market incorporates Warsh’s Jackson Hole speech into policy expectations.
- Economic Data: Fed speakers and labor data are the week’s primary macro events, as the Fed is preparing to enter a communications blackout until the September meeting.
Investment Management Team’s Views
Fed Chair Warsh delivered a relatively conventional message at Jackson Hole last week, and amid recent anxiety about long-term bond yields and inflation, we think it was exactly what investors needed to hear. The yield curve flattened sharply, with the policy-sensitive 2-year Treasury yield rising while the 30-year yield fell during the week. The dollar strengthened, and gold prices fell. The reaction looked similar to what followed Warsh’s first press conference in June, when markets appeared to take his commitment to Fed independence and price stability seriously. Expectations for a rate hike this year increased following the speech, but we think the more important development was renewed confidence in the Fed’s institutional credibility. We think the Fed’s decision in September comes down to the data, not what Warsh said last week. Next week’s inflation data is very important in that regard.
Strong earnings brought the focus back to corporate fundamentals, with technology once again leading the market higher. Nvidia delivered another beat-and-raise quarter and rallied sharply, while strong reports across the software space provided an additional boost to the S&P 500 Index. Unlike the last several weeks, however, participation was narrower, with the average S&P 500 stock and domestic small caps declining even as the major indexes advanced. We do not view one week of narrower breadth as particularly concerning, but it reinforces just how important the technology earnings cycle remains to headline market performance. AVGO reports this week and effectively closes out what has been an exceptionally strong earnings season for U.S. equities.
Turning to September, attention may begin to shift from earnings surprises to economic data and other narratives. On the data front, investors will get a broad look at the labor market following Chair Warsh’s Jackson Hole remarks, in which he primarily focused on the Fed’s inflation fight. Job openings and manufacturing reports arrive Tuesday, followed by a private employment report Wednesday and the official August employment report on Friday. Corporate results will provide one final major read on AI infrastructure demand, tech sentiment, and consumer health, while renewed U.S.-Iran tensions and continued volatility in oil prices add another variable to the inflation outlook. With the strength of the earnings season now well understood and fuller market participation approaching after Labor Day, we will be watching closely for the themes that begin to shape trading into the fall.