Last week was a valuation and bond market reality check. Stocks finished lower despite a rebound on Friday as long term Treasury yields rose, with the 30 year briefly reaching its highest level since 2007 and the 10 year returning toward 4.7%. The Treasury’s expanded long end buybacks provided temporary relief, but yields reversed that move as concerns over deficits, inflation and Treasury supply remained. Technology and semiconductors took much of the pressure as investors questioned how much valuation they are willing to pay with yields this high.
This week, the top factors to watch are:
1. Nvidia: The biggest test of the AI trade.
Nvidia reports Wednesday after the close. This is bigger than just Nvidia: investors will be looking at AI demand, hyperscaler spending, margins, and guidance as evidence that earnings growth can continue to support elevated technology valuations.
2. Inflation + Treasury yields: Can the bond market settle down?
PCE inflation and the second estimate of Q2 GDP also arrive Wednesday morning. With long term yields already elevated, another hot inflation reading could reinforce expectations for tighter Fed policy and push yields higher, putting even more pressure on equity valuations.
3. Jackson Hole: Warsh gets his biggest Fed stage yet.
Fed Chair Kevin Warsh speaks on Friday at Jackson Hole, setting up market expectations ahead of the September Fed meeting. Markets will be looking for clues about whether the Fed remains focused primarily on sticky inflation or is becoming more concerned about slowing growth and the labor market.
The bull market hasn’t broken, but this could be a pivotal week. Last week the bond market raised the valuation hurdle; this week Nvidia, inflation, and the Fed must clear it or expectations will need to reset.
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