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.
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.
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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