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.
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.
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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