U.S. stocks rebounded today, with the Dow up 0.62%, S&P 500 gaining 1.14%, Nasdaq climbing 1.69%, and Russell 2000 advancing 0.55%.

It was the strongest day for the S&P 500 and Nasdaq since early August, snapping three straight declines. Technology led the rebound, with semiconductors, memory stocks and other AI-related companies among the strongest performers.

Investors also received some relief from the two forces that have been weighing most heavily on markets recently: oil and interest rates. Treasury yields fell 6–8 basis points across the curve, while WTI crude declined another 0.5%.

AI Takes the Lead Again

AI returned to center stage after several days of more cautious trading.

Generac surged more than 18% after announcing a multibillion-dollar agreement to supply backup generators for Amazon’s data centers. Vicor jumped after licensing its power technology to an AI equipment manufacturer, while Nokia announced an AI-related partnership with Microsoft.

CoreWeave also disclosed roughly $25 billion of new customer commitments during the early part of the third quarter, another indication that demand for computing capacity remains exceptionally strong.

Meanwhile, several industry executives continue to describe AI computing as supply constrained. The important point is that the AI buildout is increasingly spreading beyond semiconductor companies. Data centers require power generation, electrical equipment, cooling, networking, optical components and other infrastructure. That is creating a much broader ecosystem of companies benefiting from the investment boom.

Falling Yields Give Stocks Some Breathing Room

The bond market also provided some relief. Treasury yields fell across the curve, reversing part of their recent surge even after yesterday’s Fed meeting delivered a somewhat hawkish message. The Fed raised rates by 0.25 percentage points and signaled another increase may still be coming before year-end. Economic data today did little to weaken that case.

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Initial jobless claims fell to 196,000, while continuing claims dropped to their lowest level since early 2024. The Philadelphia Fed manufacturing index also remained firmly in expansion territory, although businesses continued reporting higher prices.

In other words, the economy still looks strong enough to withstand tighter monetary policy, for now. The decline in yields therefore gave growth stocks some welcome breathing room, helping technology outperform.

Oil Stabilizes After Its Recent Surge

Oil prices declined modestly, extending Wednesday’s pullback.

The recent surge in crude has been one of the biggest sources of concern for markets because higher energy prices threaten to push inflation higher while simultaneously squeezing consumers and corporate profits.

Today brought some signs that Middle Eastern oil flows remain more resilient than feared, including efforts to restore part of Saudi Arabia’s East-West pipeline.

That does not mean the geopolitical risk has disappeared. Energy supplies remain vulnerable, and refined-fuel markets remain tight.

But after oil’s extraordinary run higher over the past few weeks, even modest stabilization helps reduce one of the market’s biggest immediate concerns.

Housing Still Feels the Pressure

The housing market continues to tell a different story. August housing starts came in below expectations, while building permits were also soft. Pending-home sales increased just 0.3% and remained below year-ago levels.

That weakness is hardly surprising. Mortgage rates have risen alongside Treasury yields, making affordability even more difficult for prospective buyers. Lennar reinforced that message today, reporting weaker earnings and lowering its forecast for home closings.

So while consumer spending and employment remain resilient, housing continues to be one of the clearest areas where higher interest rates are having an impact.

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Here’s Our Take

Today’s rebound highlights just how quickly the market can respond when its two biggest macro pressures, oil and bond yields, stop moving higher.

Neither problem has disappeared. The Fed remains focused on inflation, another rate hike is still possible, energy prices remain elevated and housing continues to struggle with high borrowing costs.

But underneath those challenges, the corporate backdrop remains surprisingly strong.

The most important example continues to be AI. What began as a semiconductor story is increasingly becoming an infrastructure story spanning data centers, power generation, networking, memory and electrical equipment.

That broadening helps explain why technology can continue finding buyers even with Treasury yields near historically restrictive levels.

The question now is whether today represents the beginning of a more durable rebound or simply relief after several difficult sessions.

If oil stabilizes and Treasury yields retreat from the 5% area, strong earnings and AI investment could regain control of the market narrative. But if energy prices and yields resume their climb, those macro pressures will again compete with an otherwise strong corporate backdrop.

For now, today offered investors something they have not had much of recently: evidence that strong growth, easing oil prices and lower bond yields can still produce a powerful combination for stocks.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks finished lower today, with the Dow down 1.21%, S&P 500 off 0.44%, Nasdaq essentially flat, and Russell 2000 down 0.40%.

The market recovered somewhat from its worst levels after the Federal Reserve raised interest rates by 0.25 percentage points, as widely expected. Banks, financial services, software, energy, transportation and housing-related stocks were among the weakest areas, while healthcare, defense, networking and several consumer groups held up better.

Treasury yields moved higher at the short end, with the 2-year yield reaching its highest level since mid-2024. Meanwhile, WTI crude fell 3.2%, providing some relief after Tuesday’s sharp increase.

The Fed Raises Rates and Signals One More Hike

The Fed raised its benchmark interest rate by 0.25 percentage points to 3.75%–4.00%, with policymakers voting unanimously for the move.

More importantly, the Fed’s updated projections showed another quarter-point increase by the end of 2026, followed by no additional hikes in 2027.

Chair Kevin Warsh emphasized that price stability remains the Fed’s primary focus and described Wednesday’s move as removing some of the remaining support provided by lower interest rates.

The market interpreted those comments as somewhat hawkish. Short-term Treasury yields moved higher, and investors continue to price in another rate increase before year-end.

That means today’s hike was largely expected. The more important message was that the Fed does not appear ready to declare victory over inflation yet.

Strong Retail Sales Show the Consumer Is Still Spending

The economic data gave the Fed another reason to remain cautious.

August retail sales jumped 1.2% from July, easily beating expectations for a 0.8% increase and marking the strongest monthly gain since March.

The strength was broad. Online shopping, electronics, restaurants, sporting goods and gasoline stations all reported higher sales.

The closely watched control group, which feeds into GDP calculations, rose an even stronger 1.4%.

That is encouraging from an economic-growth perspective. Consumers remain willing and able to spend despite higher interest rates and rising fuel costs.

But strong spending also creates a complication for the Fed. A resilient economy gives policymakers more room to keep rates higher, or raise them further, while they continue fighting inflation.

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Oil Pulls Back as Supply Concerns Ease

Oil finally provided some relief.

WTI crude fell 3.2% as concerns about Middle Eastern supply disruptions eased somewhat. Saudi Arabia is reportedly increasing shipments through the Strait of Hormuz, while efforts are underway to restore part of the country’s damaged East-West pipeline.

Those developments reduce some of the immediate risk that the recent disruption will significantly restrict global crude supplies.

However, the broader energy picture remains complicated. Global diesel supplies are still tight, with refinery disruptions in Russia and the possibility of fuel-export restrictions from China adding to concerns.

So while today’s oil decline is welcome, the inflationary threat from energy has not disappeared.

AI Investment Shows Few Signs of Slowing

The AI investment story remained strong beneath the broader market weakness.

OpenAI is reportedly considering another funding round ahead of a potential IPO next year, with annualized revenue reportedly surpassing $40 billion following strong demand for Astra.

Intel gained on reports that SK Hynix is considering producing memory chips at Intel’s Ohio facility, while Apple is reportedly exploring a return to the server market.

GE Vernova also highlighted exceptionally strong demand for new power-generation capacity, another sign of the enormous infrastructure requirements accompanying the expansion of AI and data centers.

Taken together, the message remains consistent: AI demand is increasingly spreading beyond chips and software into data centers, networking, memory and electricity generation.

Higher Fuel Costs Are Starting to Show Up in Corporate Results

There are also growing signs that the recent energy shock is affecting companies directly.

J.B. Hunt fell sharply after warning that higher fuel, driver and insurance costs would weigh on quarterly profits, even as underlying shipping demand remains strong.

American and United Airlines also suggested they may need to reduce capacity as fuel prices increase.

These examples illustrate why energy prices matter so much for the broader economy. Even companies experiencing healthy demand can see profits squeezed when transportation and operating costs rise rapidly.

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Here’s Our Take

Today’s Fed decision reinforces an important shift in the market narrative.

Earlier this year, investors were worried that higher rates might push the economy into a meaningful slowdown. Instead, consumer spending remains strong, corporate earnings have held up and AI-related capital spending continues to accelerate.

That resilience is good news for the economy but it also gives the Fed less reason to tolerate inflation remaining above target.

The Fed’s message today was therefore relatively straightforward: one rate hike may not be enough.

The encouraging development is that oil prices finally pulled back. If energy prices continue to stabilize, inflation pressures could ease and reduce the need for additional tightening beyond what the Fed currently expects.

But if oil and diesel resume their climb while consumer spending remains strong, policymakers may have little reason to change course.

For investors, the key question is increasingly not whether the economy can withstand today’s interest rates, it has so far, but how many additional rate increases it can absorb before something begins to weaken.

That tension between strong growth and tighter monetary policy is likely to remain one of the market’s defining themes through year-end.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

U.S. stocks finished lower today, with the Dow down 0.63%, S&P 500 off 0.45%, Nasdaq down 0.78%, and Russell 2000 falling 0.76%.

The decline was broad, with more than twice as many S&P 500 stocks falling as rising. Consumer-oriented companies were particularly weak, including restaurants, retailers, apparel companies, airlines and autos. Big Tech was mostly lower, although semiconductor stocks generally held up better.

The biggest pressures remained oil and interest rates. WTI crude jumped another 4.4%, while the 10-year Treasury yield briefly reached its highest level since 2007 before settling around 5%.

Oil Keeps Climbing and Consumers Are Feeling It

Oil has now risen in 10 of the past 11 sessions and roughly 27% over that period, as concerns about Middle East supply disruptions continue to build.

Saudi Arabia reportedly suspended some oil shipments from Yanbu, while additional supply disruptions emerged from Libya and tensions involving Houthi forces remained elevated.

The result has been a sharp increase in energy and fuel costs at a time when consumers are already dealing with elevated prices.

That helps explain Tuesday’s weakness in restaurants, apparel, travel and other consumer-sensitive stocks. Higher fuel costs directly affect household budgets while also increasing transportation and shipping expenses for businesses.

The longer oil remains above $100, the greater the risk that the energy shock begins weighing on both consumer spending and inflation.

Treasury Yields Remain Near 5%

Bond yields provided another source of pressure.

The 10-year Treasury briefly moved above 5%, while a $13 billion auction of 20-year Treasury bonds received weak demand, particularly from foreign investors.

That matters because higher long-term rates affect borrowing costs throughout the economy, from mortgages and auto loans to corporate financing.

It also creates more competition for stocks. When investors can earn around 5% from government bonds, they may become less willing to pay high valuations for companies whose profits are expected far into the future.

Bond-market volatility has also begun rising, suggesting investors are becoming less comfortable with the recent move in rates.

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AI Stocks Stabilize

One relative bright spot was the AI trade. Semiconductors generally held up better than the broader technology sector, while industry executives continued to describe strong demand for computing capacity. Nvidia CEO Jensen Huang pushed back against concerns that efforts to make advanced AI safer will meaningfully slow innovation, while Broadcom CEO Hock Tan reiterated confidence that demand for AI inference and computing will remain strong.

That distinction is becoming increasingly important. The first phase of the AI boom was largely about training increasingly powerful models. The next phase is increasingly about inference, actually running those models across millions of everyday applications and AI agents. If that usage expands as expected, demand for computing infrastructure could remain strong even if the pace of building ever-larger frontier models eventually moderates.

The Economy Still Looks Resilient

Today’s economic data was mixed but did not point to a sharp slowdown.

The Empire State manufacturing index fell to 7.6 from 20.6 in August, indicating that manufacturing growth slowed. But new orders remained positive and employment improved. At the same time, businesses reported longer delivery times and accelerating input and selling prices, another reminder that inflation pressures have not disappeared.

Preliminary private-payroll data also showed continued improvement in hiring. That leaves the Fed facing essentially the same dilemma: economic activity remains resilient while inflation and energy prices remain too high for comfort.

All Eyes Turn to the Fed

The biggest event now comes tomorrow. Markets are pricing in roughly a 95% probability of another Fed rate hike, meaning the increase itself would not be much of a surprise. The more important information will come from the Fed’s updated economic projections and Chair Kevin Warsh’s press conference.

Investors will be looking for clues about whether policymakers see this as another isolated adjustment or whether persistent inflation and higher energy prices could require additional tightening later this year. That distinction could matter much more for markets than tomorrow’s rate decision itself.

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Here’s Our Take

The market’s biggest challenge has shifted noticeably over the past few weeks.

Earlier concerns centered on whether economic growth and employment were weakening too quickly. Recent data have eased much of that fear. The labor market remains healthy, corporate earnings are strong and AI investment continues at an extraordinary pace.

The problem now is that oil and interest rates are rising at the same time.

That combination can be particularly difficult for markets. Higher energy prices squeeze consumers and businesses while adding to inflation. Higher Treasury yields simultaneously increase borrowing costs and put pressure on stock valuations.

The AI investment cycle remains an important source of fundamental strength, but it cannot completely insulate the broader market from those forces.

With another Fed hike now widely expected, tomorrow’s real question is what comes next. If the Fed signals that inflation is improving enough for policymakers to pause after this move, markets could find some relief. If officials suggest that higher energy prices and persistent inflation may require additional tightening, the recent pressure from rising bond yields could continue.

For now, oil and the bond market, not corporate earnings, appear to be setting the tone for stocks.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks finished higher today, with the Dow up 0.98%, S&P 500 up 0.86%, Nasdaq up 0.96%, and Russell 2000 gaining 0.45%.

The rebound snapped four straight declines for the S&P 500 and Nasdaq, although both indexes still finished lower for the week. Market breadth also improved for the first time in five sessions.

Semiconductors, technology hardware, industrials, airlines, homebuilders and retailers were among the stronger areas. Most of the Magnificent Seven finished higher.

The bigger surprise was that stocks rallied despite an inflation report that strengthened the case for another Fed rate hike. Short-term Treasury yields moved higher, but WTI crude fell 2.4% after eight consecutive gains, providing some relief after the recent surge in energy prices.

Inflation Comes in Hotter Than Expected

August inflation was the day’s most important economic release.

Core CPI rose 0.3% for the month, slightly above expectations and up from July’s 0.2% increase. Headline CPI rose 0.4%, reflecting the recent increase in energy prices.

Shelter costs accelerated modestly, while airfare, used vehicles and several other categories also moved higher.

The encouraging part is that annual core inflation still fell to 2.4%, its lowest level since 2021. But the month-to-month acceleration suggests that the Fed cannot yet declare the inflation problem solved.

Markets now see roughly an 85% probability of a rate hike at next week’s Fed meeting, up considerably from a week ago.

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Oil Finally Pulls Back

Energy provided some relief. WTI crude fell 2.4%, ending an eight-session rally that had pushed oil back above $100 per barrel.

The decline followed reports that Gulf officials and Iran are expected to discuss a temporary arrangement for managing traffic through the Strait of Hormuz. Any agreement that improves the flow of oil through this critical shipping route could reduce some of the supply fears that have driven prices sharply higher.

There are still significant risks. Diesel prices have now climbed above $6 per gallon nationally, and disruptions across the Middle East and other major refining regions continue to pressure global fuel supplies.

That means energy remains an important inflation risk even after today’s decline in crude.

AI Demand Continues to Run Ahead of Supply

The AI investment story remained another important source of market support.

Oracle reported 30% revenue growth and a 120% increase in its cloud infrastructure business, while its remaining performance obligations, or contracted future revenue, reached $664 billion.

The company also highlighted another roughly $30 billion of new AI contracts.

Elsewhere, Microsoft reportedly plans to more than triple its data-center capacity to address computing shortages, while OpenAI paused new Pro subscriptions amid exceptionally strong demand for its latest Astra model.

These developments reinforce a theme we have seen repeatedly this earnings season: demand for AI computing capacity remains stronger than the industry’s current ability to supply it.

Oracle shares nevertheless declined modestly, another reminder that strong fundamentals do not always translate into immediate stock gains when investor expectations are already extremely high.

Consumers Are Growing More Cautious

There was a less encouraging message from consumers.

Preliminary University of Michigan consumer sentiment fell sharply to 47.8, well below expectations and close to the weakest readings of the year.

Consumers also expect inflation of 4.6% over the next year, up significantly from 4.0% last month.

Higher fuel prices are likely playing an important role. Even if households do not directly purchase diesel, higher trucking and transportation costs can eventually work their way into grocery prices and other everyday expenses.

That makes the recent energy shock increasingly relevant not only to the Fed, but also to consumer spending.

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Here’s Our Take

Today’s rally was notable because stocks managed to rise despite an inflation report that made a September Fed rate hike substantially more likely.

Part of that resilience reflects the continued strength of the corporate backdrop particularly in AI. Oracle’s results, Microsoft’s planned capacity expansion and extraordinary demand for OpenAI’s latest model all suggest that the AI infrastructure cycle remains very much intact.

But investors should not lose sight of the growing macroeconomic tension.

The economy remains resilient, AI spending is booming and employment is healthy. At the same time, inflation is still above target, energy costs have surged and consumers are becoming less confident.

That combination gives the Fed room, and increasingly a reason, to tighten policy again.

Today’s decline in oil provided some welcome relief, but one day does not reverse the recent energy shock. The next question is whether oil and diesel prices stabilize enough to prevent another wave of inflation from spreading through the economy.

For now, markets appear willing to tolerate another Fed hike as long as economic growth and corporate earnings remain strong. That may become the key test for the rest of the year: not simply whether rates rise again, but whether the economy and earnings can continue absorbing higher rates without breaking.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks finished lower today, with the Dow down 0.60%, S&P 500 off 0.58%, Nasdaq down 0.65%, and Russell 2000 falling 1.04%. The S&P 500 and Nasdaq have now declined for four straight sessions. AI-related stocks were among the weakest areas, along with homebuilders, industrials, retailers and commodity-sensitive names. Managed care, software, transportation, insurers and consumer staples held up better.

The biggest pressure came from oil and interest rates. WTI crude jumped 6.7% to above $102 per barrel, while short-term Treasury yields rose sharply. The 2-year yield moved back above 4.55%, and the 10-year climbed above 4.95%.

Oil Becomes an Even Bigger Inflation Problem

Energy prices were once again the dominant macro story.

WTI crude has now risen for eight consecutive sessions and roughly 20% over that stretch, as the conflict involving Iran continues to disrupt energy markets and raise concerns about shipping through key Middle Eastern waterways.

Attention has increasingly shifted toward the Bab el-Mandeb Strait and the risk that Houthi activity could further interfere with global trade and energy flows.

That matters well beyond the oil market.

Higher crude prices eventually feed into gasoline, diesel, shipping and production costs throughout the economy. With inflation already running above the Fed’s target, another sustained energy shock could make it much harder for policymakers to justify holding rates steady.

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Bond Yields Jump as Rate-Hike Odds Rise

Treasury yields moved sharply higher, particularly at the short end of the curve.

Part of the move reflected higher oil prices, but investors were also digesting inflation data and a more hawkish global central-bank backdrop.

August producer inflation was mixed. Core PPI rose just 0.2%, slightly below expectations, but headline prices increased 0.4%, with energy costs a major contributor. Diesel prices at the producer level surged more than 24% for the month.

Some components that feed into the Fed’s preferred PCE inflation measure also remained firm.

As a result, markets increased the estimated probability of a September Fed rate hike to roughly 68%.

Tomorrow’s CPI report now takes on even greater importance.

AI Stocks Take a Breather

AI and semiconductor stocks were among today’s weaker areas despite generally positive corporate commentary throughout the week.

Memory stocks came under pressure after reports that a new DeepSeek model requires less high-bandwidth memory and storage capacity, raising concerns that more efficient AI models could eventually reduce demand for certain types of hardware.

Micron fell nearly 5%. That does not necessarily undermine the broader AI investment story. Dell, Broadcom and other companies have continued to describe exceptionally strong demand for computing infrastructure.

But it highlights an important point: AI spending may continue growing rapidly even as the mix of winners changes. More efficient models could benefit software users and cloud providers while creating pressure for certain hardware suppliers.

Consumers and Housing Feel the Rate Pressure

Higher yields also weighed on economically sensitive parts of the market.

Homebuilders and building-product companies declined as mortgage-rate concerns returned, while retail and apparel stocks were broadly weak.

American Eagle fell sharply despite reporting better headline earnings, as investors focused on markdown pressure and a weaker underlying outlook for its core brand.

Existing-home sales also came in softer than expected and remained near historically weak levels.

The market continues to show that higher borrowing costs are having very different effects across the economy, even as employment and broader economic activity remain relatively resilient.

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Here’s Our Take

Today’s selloff reinforces what has become the market’s central problem: oil, inflation and interest rates are increasingly feeding into one another.

The corporate backdrop is still reasonably healthy, and the AI investment cycle remains strong. But markets are having a harder time looking past the macro environment as crude pushes above $100 and Treasury yields approach levels not seen in years.

The important question is whether this energy shock proves temporary.

If oil stabilizes and tomorrow’s CPI report confirms that underlying inflation is still cooling, the Fed could retain some flexibility and markets may find relief.

But if inflation comes in hotter than expected, the combination of strong employment, rising energy costs and elevated inflation would make another rate hike much easier for the Fed to justify.

That is why tomorrow’s CPI report matters so much. It is no longer simply about whether inflation is improving. It may determine whether the recent rise in oil and yields becomes a temporary market setback or the start of a more meaningful tightening in financial conditions.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks finished lower today, with the Dow down 0.77%, S&P 500 off 0.48%, Nasdaq down 0.64%, and Russell 2000 falling 1.32%.

The decline was broad, with more than four S&P 500 stocks falling for every one that rose. Consumer and cyclical areas were among the weakest parts of the market, including homebuilders, retailers, transportation, credit cards and private equity.

Technology was mixed. Semiconductors and memory stocks held up relatively well, while Meta stood out among the large technology companies.

Treasury yields moved higher across the curve, while WTI crude rose 3.3% to its highest close in nearly four months. Gold and silver both gained as geopolitical risks remained elevated.

Middle East Escalation Pushes Oil Above Another Threshold

The biggest macro pressure remained the conflict in the Middle East.

The U.S. reportedly destroyed several additional Iranian vessels after attempted attacks on American warships, while Iran responded with further missile activity in the region. The escalation helped push Brent crude back above $100 per barrel, while diesel prices remain exceptionally high.

For investors, the concern is no longer just energy stocks or geopolitical risk. Higher oil and diesel prices can feed directly into transportation, shipping and production costs, making inflation more difficult to control.

That is increasingly important with the Fed’s September decision approaching.

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Treasury Yields Rise After Buyback Plan Disappoints

Rates provided another headwind. Treasury announced plans to repurchase up to $6 billion of longer-dated government bonds, but the amount came in below some Wall Street expectations.

That disappointed investors who had hoped the program might provide more support for the bond market. Longer-term yields moved higher, with the 10-year Treasury reaching levels not seen since late 2023.

Higher yields matter for stocks because they raise borrowing costs and make bonds more competitive with equities, particularly higher-valued growth companies.

AI Remains Resilient Despite Broader Weakness

The AI trade remained one of the more durable parts of the market.

Meta gained nearly 7% following positive early reaction to its new Muse consumer AI agent, which is designed to automate everyday tasks such as scheduling appointments, shopping and completing forms.

Qualcomm, ASML and other semiconductor-related companies had also performed well earlier in the week, while enthusiasm around OpenAI’s latest Astra model continues to support the broader AI investment narrative.

The message remains consistent: even as the broader market struggles with rates and inflation, investor enthusiasm around AI infrastructure and applications remains intact. That said, software results remain more mixed, with several companies falling sharply after earnings despite reporting headline results that were not necessarily poor.

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Consumer Signals Are Becoming More Uneven

Today also brought another batch of mixed consumer-related updates.

Academy Sports and Signet Jewelers reported better-than-expected results, showing that consumers are still spending selectively. But Casey’s, Chewy and several consumer staples companies highlighted softer trends, weaker volumes or rising cost pressures. Kimberly-Clark also warned about additional operational and logistics challenges, while Smithfield issued a disappointing profit update.

The picture is not one of broad consumer collapse, but it does suggest households are becoming more selective while companies continue dealing with higher costs.

Inflation Remains the Main Event

The market’s attention is increasingly narrowing toward Friday’s August CPI report.

Core inflation is expected to rise 0.2% for the month, bringing the year-over-year rate down slightly to 2.4%.

That number matters enormously because markets currently see a meaningful chance of another Fed rate hike in September.

Thursday brings producer inflation and jobless claims, but Friday’s CPI report is likely to determine whether investors become more or less comfortable with the Fed outlook.

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Here’s Our Take

The market is increasingly being pulled in two different directions.

On one side, corporate innovation and AI investment remain strong. Companies continue spending aggressively on chips, data centers and new AI applications, providing genuine support for parts of the technology sector.

On the other side, the macro environment is becoming more difficult. Oil is above $100, diesel costs are elevated, Treasury yields are rising and geopolitical tensions continue to escalate.

That combination is particularly challenging because it raises the risk that inflation remains stubborn even if economic growth begins to slow. For now, investors appear willing to continue rewarding companies with strong growth stories, but the broader market is becoming more cautious.

The key question remains whether inflation can continue cooling despite higher energy and transportation costs. Friday’s CPI report could therefore be the most important market catalyst of the week. A softer reading could ease pressure on rates and stocks. A hotter reading would likely strengthen the case for another Fed hike and add to the market’s recent defensive tone.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

U.S. stocks finished lower today, with the Dow down 1.17%, S&P 500 off 0.58%, Nasdaq down 0.32%, and Russell 2000 falling 0.52%.

Healthcare was the biggest drag, while housing, autos, software, retail and insurance also struggled. Technology was more resilient, with semiconductors, memory stocks and several AI infrastructure names outperforming.

Treasury yields edged higher, while WTI crude rose 1.7% as fighting in the Middle East intensified. The dollar weakened slightly, gold fell 0.8%, and Bitcoin declined 1.6%.

Middle East Escalation Keeps Oil in Focus

Geopolitics returned to center stage following another escalation between the U.S., Iran and regional actors.

The U.S. reportedly struck Iranian tankers near Kharg Island after additional attacks on shipping, while Houthi forces targeted Saudi oil facilities. Brent crude remains close to $100 per barrel, and diesel prices continue to sit near record levels.

There may still be a path toward easing tensions. Iran and Oman are reportedly working on a temporary safe-shipping arrangement through the Strait of Hormuz.

For markets, however, the immediate concern remains inflation. Persistently high oil and diesel prices raise transportation and production costs throughout the economy, making it harder for inflation to return sustainably to the Fed’s 2% target.

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AI Stocks Continue to Show Relative Strength

Despite the broader decline, several parts of the AI trade performed well.

Qualcomm gained after announcing a collaboration with Amazon to develop AI data-center infrastructure. ASML rose after securing commitments from Samsung and Taiwan Semiconductor to use its next-generation High NA EUV equipment, while Intel gained on reports of another 10% increase in CPU prices.

Corning also announced a multibillion-dollar agreement with Verizon to provide broadband infrastructure needed to support growing data-center demand.

The broader AI story therefore remains intact. Demand for computing capacity, advanced chips, networking equipment and power infrastructure continues to generate substantial investment even as investors become more selective elsewhere in the technology sector.

Healthcare Takes a Hit

Healthcare was today’s weakest major area. Novartis fell nearly 14% after two experimental drugs produced disappointing late-stage trial results, while Stryker declined after management discussed continued weakness in parts of its medical-device business. Boston Scientific also fell after warning that a previously disclosed cybersecurity incident could prevent it from meeting its quarterly and full-year targets.

These were mostly company-specific issues rather than evidence of deterioration across the entire healthcare sector, but their size helped weigh heavily on the broader market.

Inflation Data Becomes the Next Big Test

The economic calendar was relatively quiet.

Small-business optimism weakened in August, with businesses continuing to cite softer sales, supply disruptions and inflation as concerns. Consumer inflation expectations remained elevated, although longer-term expectations eased slightly.

The much bigger event comes Friday with the August CPI report.

Core inflation is expected to rise 0.2% for the month, which would bring the year-over-year rate down slightly to 2.4%. Markets currently see the probability of another September Fed rate hike at just under 60%.

That means even a modest surprise in Friday’s inflation numbers could meaningfully shift expectations for next week’s Fed meeting.

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Here’s Our Take

Today’s decline highlights the increasingly unusual crosscurrents facing investors.

On one side, AI investment remains exceptionally strong. Companies are still expanding data centers, increasing chip capacity and signing multibillion-dollar infrastructure agreements. That continues to provide meaningful support for technology and capital spending.

On the other side, the macro backdrop remains uncomfortable. Oil is approaching $100, diesel prices remain exceptionally high, geopolitical risks are elevated and the Fed is still considering another rate hike.

That makes inflation the critical link between these stories.

If Friday’s CPI report confirms that underlying inflation is continuing to cool, the Fed may have room to look through the recent energy shock and keep rates unchanged. But if inflation proves sticky, higher energy prices combined with a resilient economy could strengthen the argument for another rate hike.

For now, the market appears willing to reward areas with strong underlying growth, particularly AI infrastructure, but the broader market may struggle to make sustained progress until investors have greater clarity on inflation and interest rates.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

U.S. stocks finished sharply higher today, with the Dow up 1.18%, S&P 500 up 1.06%, Nasdaq up 1.40%, and Russell 2000 gaining 0.51%.

The rally was broad, with the strongest market breadth in roughly a month. All of the Magnificent Seven stocks finished higher, while software, banks, insurers, private equity, autos and apparel retailers also performed well.

Treasury yields edged lower after Fed Governor Christopher Waller suggested he could support holding rates steady in September if inflation continues to improve. Gold jumped 2.8%, silver gained 3.4%, and Bitcoin rose more than 5%. Oil was little changed.

Waller Gives Markets Some Rate Relief

The biggest catalyst was a shift in interest-rate expectations.

Waller said he would be inclined to hold rates steady at the September Fed meeting if the recent improvement in inflation continues. He left the door open to another hike if upcoming inflation data disappoint, but his comments were noticeably more balanced than some of the Fed’s recent messaging.

Markets responded quickly. The estimated probability of a September rate hike fell to roughly 50%, down from nearly 70% earlier this week. That helped stocks because investors have spent much of the past week worrying that higher oil prices and stubborn inflation could force the Fed to tighten even as parts of the economy begin slowing.

Today’s message did not remove that risk, but it reminded investors that another rate increase is far from predetermined.

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AI Demand Remains Strong

The other major theme remained AI. Broadcom reported somewhat disappointing near-term revenue guidance, but the longer-term outlook was striking. The company expects AI chip revenue to reach roughly $230 billion in fiscal 2028, about double its expected fiscal 2027 level.

Broadcom highlighted commitments from six major cloud customers and said demand remains constrained by supply and deployment capacity rather than customer interest. Snowflake provided another encouraging signal, with growth accelerating and AI products beginning to make a larger contribution to results. The stock jumped nearly 17%. Nvidia also announced a $12.9 billion acquisition of Hugging Face, while Microsoft, Meta and other major technology companies continued unveiling new AI products and infrastructure investments.

The broader message remains consistent: despite persistent questions about the economics of AI spending, actual demand for infrastructure and AI-enabled products remains very strong.

The Economy Is Stronger, but Inflation Is Still Sticky

Economic data added another layer to the Fed debate. The August ISM services index rose to 55.4, signaling stronger-than-expected activity across the service economy. New orders improved sharply, while employment remained relatively soft but stabilized.

The less encouraging part was inflation. The survey’s prices-paid index climbed to its highest level in four years, reflecting continued pressure from fuel, tariffs and supply-chain disruptions. Initial jobless claims remained low at 206,000, suggesting layoffs are still limited. That combination, resilient growth, relatively stable employment and elevated prices, explains why the Fed remains cautious despite recent signs of disinflation.

Middle East Risks Ease Slightly

Geopolitical concerns also became somewhat less threatening today. Reports suggested the White House may try to limit further escalation with Iran in the near term, while oil flows through the Strait of Hormuz reached their highest level since the conflict began.

Oil prices consequently remained relatively stable despite the recent military escalation. The situation remains fluid, but improving shipping activity reduces the immediate risk of a major energy supply disruption, an important development given how much oil and diesel prices have contributed to recent inflation concerns.

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Here’s Our Take

Today’s rally came from a combination the market badly needed: slightly lower rate expectations, improving market breadth and continued evidence of strong AI demand.

The most important shift was in the Fed narrative. Waller did not declare victory on inflation, but he pushed back against the idea that another rate hike is inevitable. That gave investors some relief after a week dominated by rising yields and concerns about further tightening. At the same time, corporate fundamentals, particularly around AI, remain strong. Broadcom’s long-term forecast and Snowflake’s acceleration reinforce the view that both infrastructure spending and AI monetization are still progressing.

The challenge is that inflation has not disappeared. Services prices remain elevated, oil is still high, and the economy continues to show enough resilience that the Fed cannot comfortably ignore those pressures. For now, the market appears to be returning to a more balanced view: the Fed may not need to tighten again if inflation continues improving, while corporate growth remains healthy enough to support stocks. Tomorrow’s employment report will provide the next test. A moderate jobs number could reinforce Thursday’s optimism; a surprisingly strong report could quickly bring rate-hike concerns back into focus.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

U.S. stocks finished higher today, with the Dow up 0.56%, S&P 500 up 0.46%, Nasdaq up 0.45%, and Russell 2000 gaining 1.13%.

The rebound snapped three straight declines for the S&P 500 and Nasdaq, while market breadth turned positive for the first time in five sessions. Airlines, hotels, regional banks, payments, industrial metals and healthcare were among the stronger areas.

Technology was mixed but generally constructive. Memory stocks rallied, semiconductors recovered from earlier weakness, and Nvidia and Meta were among the stronger large-cap technology names.

Treasury yields eased modestly at the short end, helping stabilize sentiment after the recent rise in global bond yields. Oil remained elevated but gained only 0.9% after several much stronger sessions.

A Pause in Rates Gives Stocks Some Breathing Room

Today’s rebound did not appear to have one major catalyst. Instead, some relief came from Treasury yields finally stabilizing after several difficult sessions. Stocks had recently been pressured by a combination of rising interest rates, higher energy prices, concerns about additional Fed tightening and renewed geopolitical tensions.

With yields edging lower today, some of that pressure eased. That is particularly important for growth stocks because higher bond yields make future corporate earnings less valuable in today’s dollars and raise financing costs throughout the economy. The larger interest-rate debate, however, is far from settled.

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Dell Offers Another Strong AI Demand Signal

One of the day’s clearest positives came from Dell, which jumped nearly 16% after reporting another surge in AI infrastructure demand. AI server orders reached a record $60.9 billion, backlog climbed to $95 billion, and Dell raised its full-year revenue outlook by $25 billion to roughly $192 billion. The results reinforce an important theme: despite persistent questions about AI spending, financing and returns on investment, actual demand for computing infrastructure remains exceptionally strong.

GitLab also reported improving growth and stronger AI adoption, while several other technology companies continued to highlight AI-related demand. Not every company benefited, however. Palo Alto Networks, MongoDB and Credo fell despite generally solid earnings, another reminder that expectations for many technology companies remain extremely high.

The Labor Market Continues to Cool

August private payrolls increased by just 38,000, below expectations and marking the weakest reading since January. Manufacturing employment declined, while services continued to add jobs. Wage growth remained relatively stable. The Fed’s Beige Book painted a similar picture. Economic activity increased modestly across most regions, but hiring was limited and consumers remained sensitive to higher prices. New York Fed President John Williams also struck a relatively balanced tone, pointing to declining inflation and a broadly stable labor market.

All of this keeps Friday’s official employment report firmly in focus.

Oil Remains a Risk Despite Wednesday’s Calmer Trading

Geopolitical tensions remain elevated after the U.S. conducted another round of strikes against Iranian targets. Oil prices did not surge Wednesday, but crude remains near recent highs and refined products such as diesel have risen significantly.

That remains an important risk because higher energy and transportation costs could keep inflation elevated even as other parts of the economy cool. The combination of a softer labor market and stubborn inflation would make the Fed’s job considerably more difficult.

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Here’s Our Take

Today’s rebound was encouraging, but it looked more like a pause in recent selling than a major change in the market outlook.

The strongest fundamental signal continues to come from AI infrastructure. Dell’s results provide another piece of evidence that demand for computing capacity remains extremely strong, even as investors increasingly question how all of that spending will ultimately translate into profits.

At the same time, the macro picture is becoming more complicated. Hiring appears to be slowing, while oil and other inflation-sensitive costs remain elevated.

That leaves investors caught between two competing risks: an economy that slows too much and inflation that does not slow enough.

For now, stabilizing Treasury yields gave stocks some breathing room. But Friday’s employment report, and next week’s inflation data, will be much more important in determining whether this rebound can continue.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks finished lower today, with the Dow down 0.79%, S&P 500 off 0.71%, Nasdaq down 1.03%, and Russell 2000 falling 1.23%.

The selling was fairly broad. Technology, semiconductors, software, regional banks, homebuilders, transports and travel stocks all came under pressure, while more defensive areas such as healthcare, consumer staples and telecom held up better.

The bigger story was the combination of higher interest rates and another sharp jump in oil prices. Treasury yields rose 3–6 basis points, while WTI crude surged 5.2% to nearly $90 per barrel. Gold, silver and Bitcoin all declined.

Oil Jumps as U.S.-Iran Tensions Escalate

Energy markets were back in focus after the U.S. confirmed fresh strikes against Iranian targets in response to attempted attacks on commercial shipping and U.S. personnel in the Middle East. Oil has now risen more than 9% over the past four sessions, while diesel prices have climbed even more sharply in recent months.

That matters because higher energy prices can ripple through the economy through transportation, shipping and production costs. In other words, the geopolitical story is increasingly becoming an inflation story as well. That is particularly uncomfortable for markets because the Fed is already signaling that it remains concerned about price pressures.

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Rising Bond Yields Add Another Headwind

The other major pressure came from global bond markets. Long-term yields have been climbing across the U.S., Europe, Japan and Australia as investors focus on large government deficits, heavy borrowing needs and growing corporate financing tied to the AI infrastructure boom.

In the U.S., the 30-year Treasury yield has remained above 5% for much of the year. Higher yields create a tougher environment for stocks because they raise financing costs across the economy and make expensive growth stocks less attractive relative to bonds.

That helps explain why technology and other higher-valuation areas were among today’s weakest performers.

AI Trade Loses Momentum

The AI trade also struggled again, with semiconductors, memory and software stocks broadly weaker.

There was no major new fundamental catalyst behind the decline. Instead, investors appear to be continuing to reassess the sustainability of massive AI infrastructure spending, financing requirements and the growing political backlash surrounding data-center development.

At the same time, the investment cycle itself remains extremely active. Anthropic reportedly agreed to a $35 billion computing agreement with Lambda, while companies continue announcing new power and data-center projects to support AI demand.

The tension remains the same: demand is clearly strong, but investors increasingly want evidence that enormous capital commitments will generate equally compelling financial returns.

Economic Data Shows Some Cooling

Economic data were generally softer than expected.

July job openings fell to 7.27 million, while the prior month’s number was also revised lower. Manufacturing data were mixed, with the ISM manufacturing survey disappointing and new orders weakening.

Fed Governor Michael Barr said policymakers should be prepared to raise rates if inflation does not continue improving, although he also suggested the Fed can remain patient if upcoming data show further progress.

That leaves investors waiting for Friday’s employment report and, increasingly, next week’s inflation data for a clearer signal on what the Fed may do next.

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Here’s Our Take

Today brought together several of the market’s biggest current risks: higher oil prices, rising bond yields and renewed weakness in the AI trade. The biggest concern is how those forces interact. Higher energy prices could keep inflation elevated, while rising government and corporate borrowing is already pushing bond yields higher. If inflation remains sticky, the Fed may feel compelled to keep rates higher or tighten further even as parts of the economy begin to slow.

That is not an especially comfortable combination for stocks. At the same time, we would not interpret the recent weakness as evidence that the AI cycle is collapsing. Spending and demand remain extremely strong. What is changing is the market’s willingness to reward growth without asking harder questions about financing and returns.

For now, the key issue is increasingly the macro backdrop. If oil and yields keep moving higher together, they could become a much bigger obstacle for the market than any individual earnings report.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks finished lower today, with the Dow down 0.70%, S&P 500 off 0.33%, Nasdaq down 0.12%, and Russell 2000 falling 0.54%.

The decline was relatively broad, although technology held up better than most sectors. Semiconductors and software finished mostly higher, while energy stocks benefited from rising oil prices. Banks, airlines, homebuilders, healthcare and utilities were among the weaker areas.

Treasury yields edged higher, particularly at the long end, while WTI crude jumped 2.8%. Gold and silver declined, the dollar weakened slightly, and Bitcoin gained nearly 2%.

Middle East Tensions Push Oil Higher

The main new source of uncertainty came from the Middle East.

Over the weekend, the U.S. struck Iranian launchers on Larak Island that officials said were being prepared to deploy sea mines in the Strait of Hormuz. Iran subsequently launched missiles toward a U.S. base in Jordan, although they were intercepted.

The exchange marked the first direct U.S.-Iran military confrontation in roughly a month and raised concerns that the recent improvement in shipping through the Strait of Hormuz could reverse.

Oil consequently moved sharply higher. That matters beyond energy markets because higher oil prices can feed directly into inflation exactly when investors are already reassessing the likelihood of additional Fed rate hikes.

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The Fed Remains a Bigger Issue for Markets

Interest rates continue to loom over the market following Fed Chair Kevin Warsh’s Jackson Hole speech on Friday.

Markets are now pricing roughly 38 basis points of additional rate hikes through year-end, the most in more than a month. Warsh’s message that inflation remains concerning has forced investors to rethink expectations that the Fed was close to finishing its tightening cycle.

Treasury Secretary Scott Bessent said today that Treasury and the Fed remain aligned on the bond market, while also arguing that policymakers historically have not tightened monetary policy simply in response to temporary policy shocks.

That distinction could become increasingly important if geopolitical tensions continue pushing energy prices higher.

Technology Holds Up Better

Technology was one of the few relative bright spots today.

Semiconductor, memory and software stocks generally held up despite the broader decline. The AI investment cycle also remained active, with reports that OpenAI’s advertising business has reached an annualized revenue run rate of roughly $1 billion and SK Hynix is considering using Intel’s foundry business for part of its next-generation memory production.

Amazon was a notable exception, falling after reports that the FTC plans to sue the company over allegations involving advertising practices.

Elsewhere, dealmaking remained active, including Aon’s planned $17 billion acquisition of USI Insurance Services and several transactions across energy and healthcare.

A Big Week for the Economy

Today’s economic calendar was quiet, although the Dallas Fed manufacturing index came in considerably stronger than expected.

The bigger tests arrive later this week. Tomorrow brings ISM manufacturing and JOLTS job openings, followed by private payroll data and the Fed’s Beige Book Wednesday. Thursday includes jobless claims and ISM services. Then Friday brings the August employment report, with economists expecting roughly 55,000 new jobs after July’s 23,000 decline. With the Fed increasingly focused on inflation, investors will be watching closely for evidence that the labor market is either stabilizing or weakening further.

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Here’s Our Take

Today’s decline was relatively modest, but the combination of higher oil prices and higher rate expectations is worth watching. The market had begun receiving some relief from improving energy flows through the Strait of Hormuz, but renewed military exchanges between the U.S. and Iran remind investors how quickly that situation can change. If oil continues rising, it could complicate the inflation outlook just as the Fed is sounding more concerned about price pressures.

At the same time, the underlying market remains more resilient than the headline decline suggests. Technology held up relatively well, AI investment remains strong and corporate activity continues. The bigger question is increasingly macroeconomic rather than corporate: Can inflation continue cooling enough to keep the Fed from tightening much further?

That makes Friday’s employment report especially important. A softer labor market could reduce the urgency for additional hikes. Stronger-than-expected jobs data, combined with higher oil prices, would make the Fed’s path considerably more difficult and could become a bigger headwind for stocks as September gets underway.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

U.S. stocks finished modestly lower today, with the Dow down 0.02%, S&P 500 off 0.25%, Nasdaq down 0.52%, and Russell 2000 falling 1.39%. Stocks had been higher earlier in the session but reversed as Treasury yields jumped following Fed Chair Kevin Warsh’s Jackson Hole speech.

Technology was among the weaker areas. Semiconductors and memory stocks pulled back, software gave back some of yesterday’s large gains, and Nvidia lagged among the largest technology companies. Banks, apparel retailers, casinos and media held up better.

The biggest move came in bonds. Short-term Treasury yields rose roughly 12 basis points, while gold, silver and Bitcoin all fell sharply as investors increased expectations for additional Federal Reserve tightening.

Warsh Puts Inflation Back at Center Stage

Fed Chair Kevin Warsh used his Jackson Hole speech to reaffirm the Fed’s commitment to its 2% inflation target and made clear that interest rates remain the central bank’s primary tool for achieving it.

His message leaned hawkish. Warsh acknowledged recent improvement in inflation but said the overall price picture remains concerning. Markets responded by increasing the probability of a September rate hike to roughly 56%, while pricing about 38 basis points of tightening through year-end.

The speech also helped address some of the uncertainty created by July’s Fed meeting, when investors questioned the central bank’s reaction function and commitment to its inflation target. That may help Fed credibility, but it also means markets have to take the possibility of higher short-term rates more seriously.

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High Expectations Weigh on Technology

Several technology companies reported respectable results today but still saw their shares fall, reinforcing how demanding investor expectations have become. Marvell beat estimates and raised its longer-term revenue outlook, but investors wanted more detail about the impact of its Google partnership. Autodesk also beat and raised guidance but declined after a strong recent run. Rubrik posted another beat and raise, yet investors focused on slower expected growth later in the year.

The pattern is increasingly familiar: strong results are no longer enough when valuations already assume exceptional growth. That comes one day after Nvidia’s strong report reinforced the broader AI demand story. The fundamentals remain healthy, but investors are increasingly separating companies with visible AI monetization from those where future returns remain less certain.

Consumer and Economic Signals Stay Mixed

There were a few encouraging corporate results. Gap rose after another solid quarter and signs that Old Navy may be stabilizing. Elastic also rallied after reporting improving growth and strong AI adoption.

Economic data were mixed. Chicago manufacturing activity fell back into contraction, while consumer sentiment improved modestly. Near-term inflation expectations eased, which was a positive offset to Warsh’s more hawkish message.

The annual payroll benchmark revision was also modestly negative, trimming previously reported employment growth by 79,000 jobs.

Geopolitics Remains in the Background

Oil was little changed today and declined for the week as shipping flows through the Strait of Hormuz continued to improve. Estimates suggest Gulf energy exports have recovered to roughly two-thirds of prewar levels.

Diplomatic progress remains limited, but the improvement in shipping conditions has reduced fears of an immediate energy supply shock.

Russia’s war in Ukraine has become a somewhat larger market concern, particularly as renewed escalation has contributed to higher agricultural commodity prices.

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Here’s Our Take

Today’s selloff was less about deteriorating corporate fundamentals and more about interest rates. Warsh’s message reminded investors that cooling inflation does not automatically mean the Fed is finished tightening. The economy remains resilient enough that policymakers still have room to prioritize price stability, and markets now see a much greater chance of another hike in September.

At the same time, the AI story remains fundamentally strong. Nvidia’s outlook this week showed that computing demand remains exceptional, while software earnings demonstrated that some established companies are successfully turning AI into new growth. The challenge is valuation. The market is increasingly demanding both strong growth and clear evidence of attractive returns on investment. That helps explain why several technology companies fell despite objectively good results.

For now, the broader backdrop remains constructive, but higher short-term rates create a tougher environment for richly valued growth stocks. Next week’s employment data will therefore matter even more: a softer labor market could ease some of the pressure the Fed reintroduced today.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

U.S. stocks finished higher today, with the Dow up 0.20%, S&P 500 up 0.72%, Nasdaq up 1.57%, and Russell 2000 up 0.28%. The headline gains, however, overstated the strength of the broader market. Most sectors finished lower and the equal-weight S&P 500 lagged the traditional index by more than one percentage point.

Technology drove the session. Semiconductors rallied following Nvidia’s earnings, while software had one of its strongest days in years after upbeat reports from CrowdStrike, Salesforce, Okta and Veeva. Retail, financials, healthcare, industrials and several consumer groups were weaker.

Treasury yields edged higher, while oil gained 1.6%. Gold was little changed, silver rose more than 2%, and Bitcoin hovered near $80,000.

Nvidia Reinforces the AI Growth Story

The biggest catalyst was Nvidia, which delivered another strong quarter and, more importantly, said it expects revenue to grow roughly 70% in fiscal 2028, well ahead of current expectations.

Management also suggested demand could be closer to 100% growth if supply were not constrained. That helped reassure investors that the AI infrastructure buildout still has considerable momentum despite recent concerns about excessive spending, financing structures and whether customers will generate adequate returns on their investments.

Nvidia shares rose nearly 9%, while several other AI-related stocks moved higher.

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Software Pushes Back Against the AI Disruption Narrative

Software was arguably the other major story.

CrowdStrike reported accelerating recurring revenue and strong demand for its AI security products. Salesforce showed improving growth and highlighted its new Claude-powered AI offering. Okta delivered strong core results while pointing toward greater AI monetization ahead. Veeva also reported encouraging early demand for its Falcon AI agents.

The takeaway was important: investors have spent much of the year debating whether AI will disrupt traditional software companies. Today’s results provided evidence that at least some established software platforms may instead be able to use AI to strengthen their products, improve growth and create new revenue streams.

Retail Tells a More Mixed Story

The consumer side of the market was less encouraging.

Dollar General was the standout, beating expectations and raising guidance. But Burlington, Best Buy and Dollar Tree all fell despite generally respectable results.

The pattern continues to suggest that consumers are still spending, but they remain selective and price-sensitive. Retailers are increasingly relying on promotions, pricing investments and tariff refunds to protect demand, making execution more important as the year progresses.

Rates and the Fed Remain the Next Big Question

Economic data were fairly quiet. Initial jobless claims remained low at 203,000, reinforcing the view that layoffs remain limited. The goods trade deficit widened more than expected.

Fed officials continued to sound cautious on inflation. Cleveland Fed President Beth Hammack again argued that rates may need to rise, while Kansas City Fed President Jeff Schmid said policy is not particularly restrictive.

That puts the spotlight squarely on Fed Chair Kevin Warsh’s Jackson Hole speech tomorrow morning. Investors will be watching closely for any clues about how the Fed balances persistent inflation against signs of softer employment growth.

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Here’s Our Take

Today’s rally was encouraging, but it was also very concentrated. Nvidia and software carried the market while most other sectors declined.

The good news is that the fundamental AI story continues to hold up remarkably well. Nvidia’s outlook suggests demand for computing infrastructure remains exceptionally strong, while this week’s software results show that AI may create winners within traditional software rather than simply disrupt the entire sector.

The bigger question is whether that strength can broaden beyond technology. Retail results remain uneven, rates remain elevated and the Fed’s next move is still uncertain.

For now, earnings continue to support the bull case. But with technology again doing much of the heavy lifting, tomorrow’s Jackson Hole speech could determine whether investors remain comfortable paying up for growth or begin demanding a broader and more balanced market advance.

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Stocks finished essentially flat today, with the Dow down 0.21%, S&P 500 down 0.02%, Nasdaq down 0.08%, and Russell 2000 down 0.14%. Beneath the surface, however, market breadth was somewhat better than the headline indexes suggested, with the equal-weight S&P slightly higher and several cyclical areas outperforming.

Semiconductors, memory and software recovered from earlier weakness, while banks, private equity, credit cards, industrials and transportation stocks also performed relatively well. Healthcare, homebuilders, airlines and cruise lines were among the weaker areas.

Treasury yields moved modestly higher, the dollar strengthened, and gold and silver pulled back. Oil was nearly unchanged after a choppy session.

Nvidia Becomes the Main Event

Much of today’s session felt like a waiting game ahead of Nvidia’s earnings after the close. The broader AI trade has been volatile recently as investors weigh enormous infrastructure spending against questions about financing, competition and whether all that spending will generate sufficient returns.

Those concerns remain, but the underlying demand signals continue to look strong. Semtech reported particularly strong AI data-center growth, while several recent companies across computing, networking and memory have continued to highlight healthy demand.

Nvidia’s initial results reinforced that message. The company guided to roughly 70% revenue growth in fiscal 2028, well above current expectations, and said underlying demand could be closer to 100% if supply were available. The stock rose in after-hours trading.

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Inflation Is Cooling, But Not Enough to Settle the Fed Debate

July’s core PCE inflation increased 0.2% for the month, in line with expectations, while the year-over-year rate remained at 3.3%. Personal income and consumer spending both came in somewhat stronger than expected.

That combination captures the Fed’s dilemma fairly well. Inflation has improved, but it remains above the 2% target, while households are still spending and the economy has not clearly weakened enough to force the central bank’s hand.

Treasury yields consequently remained elevated, and investors are increasingly looking toward Fed Chair Kevin Warsh’s Jackson Hole speech on Friday for clues about how the Fed is thinking about the balance between inflation and growth.

AI Disruption Hits Software Again

The AI disruption debate also resurfaced in software. Intuit fell after issuing weaker long-term growth guidance, particularly for its TurboTax consumer business, where lower-end customers are increasingly being targeted by cheaper and AI-enabled alternatives. Zoom also disappointed investors despite beating quarterly expectations, largely because of concerns about slower consumer growth and pressure on margins.

These developments reinforce an increasingly important distinction within technology: AI may expand the overall technology market, but it can simultaneously disrupt incumbent business models. Investors are becoming much more selective about which companies are likely to benefit rather than simply assuming all technology companies will.

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Geopolitics Remains a Background Risk

Oil was volatile as investors continued to weigh conflicting developments in the Middle East. There are still efforts to establish a temporary shipping corridor through the Strait of Hormuz, but President Trump said he was in no hurry to restart formal negotiations with Iran.

Meanwhile, reports that Russia could escalate its war in Ukraine added another layer of uncertainty. For now, neither issue appears to be driving broad market risk sentiment, but energy prices remain an important link between geopolitics, inflation and interest rates.

What We’re Watching

The immediate focus is now on the market’s full reaction to Nvidia’s earnings and outlook. Tomorrow also brings jobless claims and additional Treasury supply.

Friday is likely to be the week’s most important macro day, with updated payroll revisions, consumer sentiment and, most importantly, Fed Chair Warsh’s Jackson Hole speech.

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Here’s Our Take

Today’s flat index performance masked a market that is still trying to answer two big questions: Can AI fundamentals stay strong enough to justify enormous investment levels, and can inflation continue cooling enough to keep the Fed from tightening further?

Nvidia’s early earnings read is encouraging on the first question. Demand remains exceptionally strong, and supply still appears to be the bigger constraint. But that does not eliminate concerns around financing, memory costs, capital intensity or competition.

On the second question, today’s PCE report was reassuring but not decisive. Inflation is moving in the right direction, yet the economy remains reasonably resilient. That leaves the Fed with little urgency to change course.

For now, the market still has a constructive fundamental backdrop, but the hurdle for AI remains extraordinarily high and interest rates remain an important valuation constraint. Nvidia and Warsh should tell us much more about both sides of that equation over the next two days.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks finished modestly higher today, with the Dow up 0.30%, S&P 500 up 0.32%, Nasdaq up 0.66%, and Russell 2000 up 0.50%. The gains were somewhat narrower than the headline numbers suggest, however, as overall S&P 500 breadth was slightly negative.

Technology provided much of the support. Semiconductors and storage stocks rebounded after recent weakness, while networking and communications companies also performed well. Airlines, investment banks, biotech and industrial metals were among the other stronger groups. Retail, energy and several consumer-facing sectors lagged.

AI Gets a Bounce Ahead of Nvidia

The AI trade recovered after several weak sessions, although there was no major new catalyst behind Tuesday’s move. Recent selling has largely been attributed to concerns about financing requirements, open-source competition, rising infrastructure costs and questions about whether enormous AI spending will ultimately generate sufficient returns.

That makes Nvidia’s earnings Wednesday evening the next major test for the sector. Expectations remain extremely high, meaning another strong quarter may not be enough by itself. Investors will be paying particularly close attention to demand visibility, pricing, memory costs and whether customers continue expanding AI infrastructure commitments.

Elsewhere in technology, Apple unveiled upgraded Mac computers, while Meta is reportedly preparing a consumer AI agent and another new AI model later this year.

Lower Oil Helps Bonds

Oil fell for a second straight session as investors focused on renewed efforts to restore traffic through the Strait of Hormuz. Iran and Oman outlined a framework that could establish a temporary joint shipping lane, while reports also suggested some progress toward broader de-escalation.

There is still considerable uncertainty about whether an agreement can hold, but the prospect of improving oil flows helped push crude prices lower. That, in turn, eased some inflation concerns and contributed to the rally in Treasuries.

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Retail Remains a Weak Spot

The biggest corporate disappointment came from Dick’s Sporting Goods, which fell more than 30% after missing quarterly expectations and sharply reducing its full-year outlook. Management said parts of the athletic footwear and apparel market became increasingly promotional during the quarter, with recently acquired Foot Locker particularly affected.

The results add to a growing list of mixed retail updates and reinforce the idea that consumers remain willing to spend, but are becoming increasingly selective and price-sensitive.

Consumers Grow More Cautious

August consumer confidence slipped to 89.4, with households becoming less optimistic about the months ahead even as their assessment of current conditions improved. The labor-market portion of the survey was actually somewhat stronger, suggesting the weakening sentiment is not primarily about jobs.

New-home sales also fell sharply in July, dropping 10.5% from the prior month as elevated mortgage rates and affordability challenges continue to weigh on housing.

What We’re Watching

Tomorrow brings one of the week’s biggest market catalysts: Nvidia earnings after the close. Investors will also begin looking toward Friday’s Jackson Hole speech from Fed Chair Kevin Warsh.

Before then, tomorrow’s economic calendar includes the Fed’s preferred PCE inflation measure, personal income and spending, durable-goods orders and an updated estimate of second-quarter GDP.

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Here’s Our Take

Today’s rebound was constructive, but it did little to resolve the bigger questions hanging over the market. The AI trade remains fundamentally strong, yet expectations are exceptionally high and investors are becoming more sensitive to financing costs, competition and returns on capital.

At the same time, falling oil prices and lower Treasury yields are providing some relief to the broader market. If that combination persists, it could help support areas outside of technology.

For now, however, Nvidia is the immediate test. The company has repeatedly delivered extraordinary growth, but at this stage investors are looking for more than another beat. They want confirmation that the AI spending cycle remains both durable and economically attractive.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks started the week mostly lower, with investors appearing reluctant to make big moves ahead of several important catalysts. The Dow gained 0.26%, while the S&P 500 fell 0.28%, Nasdaq declined 0.76%, and Russell 2000 lost 0.76%.

Technology was the main source of weakness. Semiconductor, memory and other momentum stocks continued their recent pullback, with Nvidia and Tesla among the notable decliners. Banks, payments, airlines, hotels and parts of retail held up better.

Elsewhere, Treasury yields declined at the long end, the dollar gained 0.2%, gold rose 0.4%, Bitcoin futures climbed 2.4%, and oil fell 2.4% after gaining nearly 6% last week.

AI Stocks Remain Under Pressure

There wasn’t a single catalyst behind Monday’s technology weakness. Instead, investors continue to digest a growing list of questions surrounding the AI boom ahead of Nvidia’s earnings on Wednesday.

Nvidia is reportedly raising prices by more than 15% on servers containing its AI chips as memory costs increase. At the same time, competition among AI models continues to intensify, with lower pricing and open-weight models putting pressure on parts of the industry. Nvidia also reportedly reached a $6 billion licensing agreement with AI startup Poolside to develop an open-weight model.

Meanwhile, Alibaba announced plans to raise more than $10 billion through a share sale to help fund AI investments. Taken together, the headlines reinforce both sides of the AI story: demand and investment remain enormous, but competition, financing requirements and questions about returns are becoming harder to ignore.

That puts even more attention on Nvidia’s results Wednesday. Investors will be looking not just for another strong quarter, but for evidence that demand remains strong enough to justify the extraordinary level of spending across the industry.

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Treasury Buybacks Give Bonds Some Support

Long-term Treasury yields moved lower after reports that Treasury Secretary Scott Bessent is considering using part of the roughly $950 billion Treasury General Account to fund additional government bond buybacks.

In simple terms, Treasury could use some of its existing cash to purchase government bonds already in the market, potentially improving liquidity and relieving some pressure on long-term yields.

That helped bonds Monday, but it doesn’t eliminate the bigger structural issues facing the market. Large federal deficits, heavy government borrowing and growing debt issuance tied to AI investment continue to put upward pressure on longer-term interest rates.

Trade and Geopolitical Risks Remain in the Background

The U.S.-Canada trade dispute also remains a source of uncertainty. Following the breakdown of negotiations and new 50% tariffs on roughly $20 billion of Canadian imports, President Trump threatened similar tariffs on Canadian autos, auto parts and steel beginning in 2027. The delayed implementation provides time for negotiations, but the dispute adds another layer of uncertainty for businesses.

Separately, Treasury announced new sanctions against nearly 60 Iranian entities, individuals and vessels, along with additional restrictions targeting sectors including shipping, technology and gold. The big unanswered question remains how aggressively the U.S. will target countries doing business with Iran, particularly China, which purchases the vast majority of Iranian oil exports.

What We’re Watching

The calendar gets much busier from here. Nvidia reports Wednesday, the same day investors receive July personal income, spending and the Fed’s preferred PCE inflation measure.

The week then culminates Friday with Fed Chair Kevin Warsh’s Jackson Hole speech. Investors will be looking for clues about how the Fed views inflation, growth and the path for interest rates.

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Here’s Our Take

Today’s weakness doesn’t point to a major change in the fundamental backdrop. Instead, the market appears to be taking some risk off the table ahead of two major tests: Nvidia and Jackson Hole.

The more interesting development is what is happening beneath the surface of the AI trade. The debate is gradually shifting from whether AI demand is strong, it clearly remains strong, to whether the enormous amount of capital being committed will ultimately produce attractive returns. Rising infrastructure costs, aggressive financing, lower model prices and greater competition are making that question increasingly important.

For now, the broader backdrop remains reasonably supportive. But with valuations elevated and expectations high, investors are demanding more than simply good news. Nvidia will provide the next major test of whether the AI investment cycle can continue clearing that higher bar.

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Triple Gains - Stock Analysis - Thematic Insights - Portfolio Strategy

DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

U.S. stocks finished higher today, recovering some of yesterday’s losses and ending an otherwise weaker week on a positive note. The Dow rose 0.98%, the S&P 500 gained 0.43%, the Nasdaq added 0.43%, and the Russell 2000 climbed 0.85%.

The rebound was fairly broad. Financials, industrial metals, transportation stocks, software, autos and parts of the retail sector performed well. Big technology stocks were mostly higher, with Tesla standing out. Semiconductor stocks were somewhat weaker, however, as investors continued to digest questions around the enormous amount of money being committed to artificial intelligence infrastructure.

Despite today’s bounce, the S&P 500 and Nasdaq posted their first weekly declines in four weeks.

The Economy Still Looks Surprisingly Strong

One of today’s biggest developments came from the latest snapshot of U.S. business activity. The preliminary August Composite PMI rose to 56.0, its highest level in more than four years and well above expectations. Any reading above 50 indicates expansion. The strength came primarily from services, where the PMI jumped to 56.8, the strongest reading in 20 months. Manufacturing remained in expansion territory at 53.2, although growth slowed somewhat from July.

There was another encouraging detail: companies added workers at the fastest pace since early 2025, while inflation pressures eased. That combination, stronger economic activity, better hiring and cooling price pressures, is close to the “soft landing” scenario investors have been hoping for. The complication is that a stronger economy also gives the Federal Reserve less reason to lower interest rates anytime soon.

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Interest Rates Remain a Problem the Market Cannot Ignore

Treasury yields moved higher again today, rising roughly 3–5 basis points across the curve and finishing higher for the week. That largely erased the bond-market rally that followed Treasury’s surprise announcement earlier this week that it would increase purchases of longer-term government bonds in an effort to improve market liquidity.

The bigger concern is that some of the forces pushing interest rates higher are structural rather than temporary. Large federal deficits continue to require significant Treasury borrowing. At the same time, technology companies are raising enormous amounts of capital to finance AI infrastructure. Broadcom, for example, was reportedly discussing a financing package exceeding $60 billion tied to chip infrastructure.

That means the government and corporations are effectively competing for enormous amounts of investor capital. For households and businesses, persistently high long-term rates matter because they influence everything from mortgages and auto loans to corporate borrowing costs and business valuations.

Gold and Bitcoin Send an Interesting Signal

While stocks bounced today, some of the strongest moves occurred elsewhere. Gold jumped 2.4%, while silver gained 2.1%. Bitcoin futures climbed another 6.3%, bringing Bitcoin’s weekly gain to roughly 23%, its strongest week since March 2024. Gold was on track for a third consecutive weekly gain, while the U.S. dollar weakened to roughly a three-month low.

Investors sometimes refer to this as the “debasement trade.” The basic idea is that when investors become concerned about large government deficits, growing debt issuance or the long-term purchasing power of traditional currencies, they increasingly look toward scarce assets such as gold and Bitcoin.

That does not necessarily mean investors are abandoning stocks or bonds. But the simultaneous strength in precious metals and crypto is worth watching, particularly while long-term Treasury yields remain elevated.

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AI Remains Powerful but Investors Are Asking Harder Questions

The AI investment story remains one of the strongest forces supporting markets, but the conversation is gradually becoming more complicated. Demand for chips, memory, data centers and computing capacity remains extremely strong. Micron’s CEO said this week that AI has fundamentally changed the memory industry, while enormous financing packages continue to be assembled for AI infrastructure.

At the same time, investors are increasingly asking how all of this spending will ultimately generate adequate returns. Reports suggest technology companies have accumulated trillions of dollars of commitments related largely to AI infrastructure, including substantial obligations that do not immediately appear as traditional debt.

There is also growing resistance to data-center construction in some communities because of concerns about electricity consumption, water usage and infrastructure costs. None of this means the AI investment cycle is ending. But it does suggest the market may increasingly distinguish between companies that can demonstrate real AI revenue and returns and those primarily benefiting from expectations surrounding future demand. That distinction could become particularly important next week.

Oil and the Iran Conflict Remain Important Wild Cards

Oil prices edged higher today and have risen in nine of the past eleven sessions as hopes for a quick diplomatic resolution to the U.S.-Iran conflict have faded. There have been some encouraging developments around the Strait of Hormuz. Reports suggest U.S.-supported shipping routes are moving meaningful amounts of oil through the region, reducing the risk of the worst-case supply disruption investors initially feared.

But a broader diplomatic settlement remains elusive. The Trump administration is expected to announce additional economic measures against Iran next week, shifting the immediate focus toward sanctions and financial pressure rather than another major military escalation. For markets, the distinction matters. Continued economic pressure is disruptive, but another major military escalation could produce a much larger shock to oil prices, inflation and global growth.

What We’re Watching Next Week

Next week brings two potentially important events. First, Nvidia reports earnings on Wednesday. Expectations remain extremely high, and investors will be looking beyond the headline numbers for evidence that demand for AI computing remains strong enough to justify the extraordinary amount of infrastructure investment taking place across the industry.

Then on Friday, Federal Reserve Chair Kevin Warsh speaks at Jackson Hole. Investors will listen closely for clues about how the Fed is balancing stubborn inflation risks against signs of cooling in parts of the labor market and consumer economy. The July personal income and spending report, including the Fed’s preferred core PCE inflation measure, will also provide another important read on inflation.

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Here’s Our Take

Today’s rebound was encouraging, but the bigger story this week was not really the day-to-day movement in stocks. The underlying investment environment is becoming more complicated.

On one side, corporate earnings remain healthy, economic activity is expanding, AI investment continues at an extraordinary pace and there is little evidence of an imminent recession. Those are meaningful supports for equities.

On the other side, long-term interest rates remain stubbornly high, government borrowing continues to grow, AI financing requirements are becoming enormous, and parts of the consumer economy are showing signs of strain.

The surge in gold and Bitcoin adds another dimension. Investors appear increasingly willing to diversify away from traditional financial assets as concerns about deficits, debt issuance and currency purchasing power grow.

None of this necessarily signals an imminent market downturn. But it does suggest that simply owning whatever benefited most from the AI boom may become a less reliable strategy.

The next phase of this market could increasingly reward companies that can demonstrate real earnings growth, strong balance sheets, pricing power and attractive returns on invested capital.

Next week’s Nvidia earnings should provide an important test of that thesis. The question is no longer whether AI demand is strong. It clearly is. The question is whether the returns generated by the enormous investment required to satisfy that demand can continue to justify the market’s expectations.

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Triple Gains - Stock Analysis - Thematic Insights - Portfolio Strategy

DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks finished lower today, with the Dow down 1.31%, the S&P 500 off 0.86%, the Nasdaq down 1.00%, and the Russell 2000 falling 1.34%. Selling was fairly broad, with retailers, banks, homebuilders, airlines, and several technology groups among the weaker areas. Energy stocks were one of the few bright spots as oil prices continued to climb.

Interest rates were part of the pressure. Longer-term Treasury yields moved higher again, giving back a meaningful portion of Wednesday’s decline. The Treasury Department’s decision to increase bond buybacks had briefly helped the market, but investors remain skeptical that those measures can fully offset bigger forces pushing yields higher, including large government borrowing needs and heavy corporate financing tied to AI infrastructure.

Oil added another layer of concern. WTI crude rose 2.9% and has now climbed in nine of the past eleven sessions. U.S.-Iran tensions remain a key factor, but investors are also paying more attention to refining capacity and rising fuel prices, particularly diesel. Higher energy costs matter because they can eventually flow through to transportation, manufacturing, and consumer prices.

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Retail earnings also added to worries about the consumer. Walmart fell after comparable-store sales missed expectations and management provided softer guidance for the next quarter. Advance Auto Parts reported unexpectedly negative comparable sales and pointed to weaker professional demand and pressure on household budgets. Coty also warned that consumers are becoming increasingly selective. These results do not necessarily signal a sharp consumer downturn, but they reinforce recent evidence that spending momentum may be cooling.

Technology was somewhat steadier beneath the surface. Memory stocks held up better and semiconductors were mixed after two difficult sessions. That suggests some stabilization after the latest momentum selloff, which has been blamed largely on quantitative and systematic trading flows. Still, investors continue to debate whether expectations around AI have simply become too high, making even strong fundamental news harder to translate into stock gains.

Economic data were relatively solid. Initial jobless claims remained low, reinforcing the view that layoffs are still limited. The Philadelphia Fed manufacturing index also surprised to the upside and reached its strongest level in more than five years, with stronger employment and easing price pressures. Fed commentary remained mixed, with San Francisco Fed President Daly sounding comfortable with current policy while St. Louis Fed President Musalem argued financial conditions remain relatively easy.

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Here’s Our Take

Today’s selloff was less about one major negative surprise and more about several smaller concerns piling up at once. The most important issue remains interest rates. Even with inflation showing signs of cooling, longer-term yields remain stubbornly high because investors are increasingly focused on government borrowing, fiscal deficits, and enormous financing needs tied to AI infrastructure. That means the Fed can become less hawkish without necessarily delivering much relief to long-term borrowing costs.

The second issue is the consumer. Walmart, Advance Auto Parts, and Coty all offered slightly different versions of the same message: consumers are still spending, but they are becoming more selective and increasingly sensitive to price. That fits with softer retail sales data from last week and suggests the powerful consumer resilience story may be losing some momentum.

At the same time, the broader economic picture is hardly collapsing. Jobless claims remain low, manufacturing data were strong, and corporate earnings overall have remained healthy. That makes this environment more of a growth-versus-valuation debate than a recession scare.

For investors, the key question is whether strong earnings can continue to offset elevated rates and increasingly demanding expectations. AI remains a major structural growth driver, but the bar has become much higher. Consumer spending is still supportive, but less uniformly so. And higher oil prices could complicate the recent progress on inflation. That combination suggests markets may remain choppy even if the underlying economy stays reasonably healthy.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks ended modestly lower today, with the Dow down 0.20%, the S&P 500 off 0.17%, and the Nasdaq down 0.28%. Small-cap stocks were a relative bright spot, with the Russell 2000 gaining 0.51%. Despite today’s pullback, both the S&P 500 and Russell 2000 reached fresh record highs during the week.

The biggest economic story was weaker consumer spending. July retail sales fell 0.6% from the prior month, considerably worse than expected. Even after stripping out autos and some other volatile categories, spending was softer than economists had forecast. Part of that weakness may reflect timing effects, including an earlier Prime Day, but the report still raises the question of whether consumers are becoming more cautious after a long period of resilience.

Consumer confidence also weakened. The University of Michigan’s preliminary August sentiment reading fell to 51.0 from 55.2 in July, with consumers feeling less optimistic about both current conditions and the outlook ahead. Near-term inflation expectations ticked slightly higher, although longer-term expectations remained unchanged.

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Interestingly, Treasury yields still moved higher despite the softer consumer data. That reflects a broader issue investors continue to wrestle with: interest rates are being influenced by more than just the Fed. Large government borrowing needs, elevated deficits, and the growing amount of corporate debt being issued to finance AI infrastructure are all adding pressure to the bond market. That helps explain why longer-term borrowing costs have remained stubbornly high even as recent inflation data have improved.

Technology stocks were mixed. Applied Materials fell despite reporting better-than-expected results and guidance, another example of how high expectations have become for companies tied to the AI investment boom. The underlying business trends were still strong, but investors increasingly want companies to do more than simply beat forecasts.

Energy was one of the strongest areas of the market as oil prices rose 1.4%. The U.S.-Iran situation remains unresolved, but the market continues to assume that economic pressure and diplomacy are more likely than a return to large-scale fighting.

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Here’s Our Take

This week left investors with a somewhat unusual combination: inflation data improved, consumer spending weakened, yet longer-term interest rates remained relatively high.

The good news is that inflation continues to move in the right direction. Both consumer and producer inflation were relatively well behaved, which has reduced the urgency for the Fed to raise rates again. At the same time, today’s retail sales and consumer sentiment reports suggest demand may be cooling somewhat. If that continues, it should eventually help ease inflation further.

The bigger question is whether bond yields will cooperate. Increasingly, long-term rates are being shaped not just by Fed policy but also by heavy government borrowing and the enormous financing needs surrounding the AI infrastructure buildout. That could keep borrowing costs higher than investors might normally expect in an environment of cooling inflation.

Corporate earnings remain the strongest support for stocks. Q2 results have been broadly impressive, particularly across technology and AI infrastructure. But expectations have risen with them. Applied Materials’ decline despite strong results is a useful reminder that good news may no longer be enough when investors are already expecting great news.

For now, the broader market backdrop remains constructive. Earnings are growing, inflation is gradually easing, and the economy is still expanding. But the combination of softer consumer spending, elevated long-term rates, and increasingly demanding earnings expectations means the path higher is likely to become more selective.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.

Stocks finished higher today, with the S&P 500 gaining 0.65%, the Nasdaq rising 0.81%, and the Russell 2000 adding 0.24%. The Dow was up a modest 0.13%. Both the S&P 500 and Russell 2000 reached fresh record closing highs, while gains were fairly broad across the market.

Technology and AI-related stocks were again among the leaders. Semiconductor, memory, and data-center stocks performed well as another round of corporate earnings reinforced the view that demand for AI infrastructure remains strong. SanDisk rallied after outlining an optimistic longer-term growth outlook, while Cisco reported another quarter of strong orders, helped by networking and AI-related demand.

The economic news was also supportive. July producer inflation, which measures prices businesses receive for their goods and services, came in slightly cooler than expected. Core producer prices rose 0.2% for the month, while the annual rate slowed to 4.2%. Combined with yesterday’s relatively benign consumer inflation report, the data provided further evidence that inflation pressures are not accelerating sharply.

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That helped push Treasury yields lower and reduced expectations for additional Federal Reserve rate hikes. Markets are now pricing roughly a one-in-three chance of a September rate increase, down considerably from earlier in the week. Several Fed officials remain concerned that inflation is still too high, but the latest data gives policymakers more room to remain patient.

Lower oil prices also helped. Crude fell 2.3% as investors continued to assume that diplomacy will ultimately prevent a significant escalation in the U.S.-Iran conflict. Negotiations remain difficult and uncertainty around the Strait of Hormuz has not disappeared, but the absence of renewed large-scale fighting has kept energy markets relatively contained.

Beyond technology, airlines, homebuilders, building-material companies, restaurants, financial firms, and other economically sensitive areas also performed well. That broader participation is encouraging because it suggests the market’s gains are not being driven exclusively by a small number of large technology companies.

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Here’s Our Take

Today’s market continues to reflect a fairly supportive combination of strong corporate earnings, gradually improving inflation, and lower interest-rate pressure.

The most important development this week has been inflation. Neither consumer nor producer prices showed the kind of acceleration that would force the Fed into an immediate response. Inflation is still above the Fed’s 2% long-term goal, so the debate over future rate hikes is not over, but the case for acting quickly has weakened.

At the same time, the AI investment cycle continues to show considerable strength. The conversation is gradually shifting from simply asking how much companies are spending to asking whether those investments are producing attractive returns. Recent earnings have provided encouraging evidence through stronger orders, expanding backlogs, higher pricing, and improving economics across parts of the data-center ecosystem.

There are still reasons for caution. Market valuations are elevated, investor optimism has increased, geopolitical risks remain unresolved, and the Fed could become more aggressive again if inflation turns higher. But for now, strong earnings and easing inflation pressure are giving investors enough confidence to keep pushing stocks higher and importantly, participation in the rally is beginning to extend beyond just the largest technology companies.

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DISCLAIMER: The content provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other form of personal recommendation. Nothing in this newsletter should be interpreted as a suggestion to buy, sell, or hold any investment or security. All content is for general informational purposes only and should not be relied upon for making investment decisions. Readers should conduct their own research and consult qualified financial advisors before making any investment decisions. To read our full disclaimer, click here.