Much of the decline in stocks last week was attributed to rising yields, but it’s important to understand that, broadly speaking, rising yields are a response to 1) Concerns about AI spending boosting inflation and bond supply and 2) Concerns about U.S. government policy (both foreign policy and Fed policy). Those two issues are boosting yields, which is weighing on sentiment and stocks.
This week brings three specific opportunities to help alleviate those concerns (or, negatively, make them worse). Opportunity 1: NVDA Earnings/Implications for CapEx. Nvidia reports earnings on Wednesday, and it’s still the single most important stock in the market. The results will no doubt be fantastic, and whether NVDA rallies or declines after the print will likely center around whether the results were “fantastic enough.”
However, there’s a bigger issue here for the whole AI trade. The sheer enormity of the cost of AI buildout (expected to cost hundreds of billions) is boosting concerns about inflation and causing companies across the AI spectrum to raise huge sums of money via debt and equity offerings. That increase in bond supply is putting downward pressure on bonds/upward pressure on yields (more supply and fixed demand lead to lower prices).
If NVDA can show strong demand (which is most important) but also give hope that costs of the AI buildout are stabilizing (and not ramping ever higher), then that will help ease AI-linked inflation/bond anxiety and take upward pressure off yields (and reduce the headwind on stocks).
Opportunity 2: Iran News. The U.S./Iran conflict is moving towards a quagmire of sorts where the U.S. must maintain a strong military presence to keep Hormuz “open” while Iran remains a nuisance, occasionally attacking merchant ships or Gulf infrastructure. Today, the U.S. will announce more economic sanctions on Iran, and if that increased pressure helps to spur the resumption of ceasefire talks, that will help ease quagmire concerns and lower oil prices, which will help reduce the upward pressure on yields.
Opportunity 3: Warsh’s Jackson Hole Speech. Fed Chair Warsh will give a likely lengthy speech on policy Friday morning, and if he can help better describe how the Fed will react to inflation and growth data (i.e., what would cause them to hike rates), that will help ease Fed concerns and reduce upward pressure on yields. Put plainly, Warsh’s threats of radical changes to how the Fed operates (including how they decide to raise or lower interest rates) combined with the sudden lack of useful communication, have created uncertainty, and uncertainty leads to higher interest rates.
If Warsh can help markets and investors better understand how the Fed will execute policy depending on data, etc., then that will reduce that uncertainty and help lower Treasury
yields. Bottom line, this is another “sneakily” important week that could either 1) further boost yields and pressure stocks or 2) cause a solid rebound that recoups last week’s losses.
Source: Sevens Report 8-24-26