Stocks wrap up winning week even as inflation becomes top of mind for investors
Between the latest reading of the personal consumption expenditures price index and Federal Reserve Chairman Kevin Warsh’s first keynote speech at Jackson Hole , one thing is clear: the battle against inflation is not over yet. While stocks posted a winning week, they came under pressure Friday after Warsh expressed some concern about the direction inflation is headed, saying in his speech, “While this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved.” His comments come after sticky inflation weighed on sentiment this week, with the PCE price index – a metric closely monitored by the Fed – rising a bit more than expected in July. That follows an in-line July consumer price index reading earlier this month. “[Warsh] really wants to make sure that inflation expectations, if it’s not too late already, don’t become embedded into the economy, and there are real reasons to worry about that,” Bill Birmingham, managing director at REX Financial, said in an interview. Expectations for an interest rate hike from the Fed at its September meeting increased following Warsh’s Jackson Hole remarks , and shorter-dated Treasury yields spiked . Birmingham, who called the chairman’s speech “refreshingly straightforward,” thinks those odds for a hike can go even higher. “It feels very clear that that is where they want to go,” he added. Post-earnings slump no more What has driven the market to its winning week is the reaction to Nvidia ‘s earnings report. On Wednesday after the bell, the chipmaker’s second-quarter results beat on the top and bottom lines, with its revenue more than doubling from a year ago. The company also forecast revenue growth of 70% in fiscal 2028, well above the 44% analysts had expected. The next day, the stock finished nearly 9% higher, snapping its streak of post-earnings declines over the previous four reports. Melissa Brown, global head of investment decision research at SimCorp, thinks that the latest report is enough to calm investors around fears over circular financing . “Maybe this holds off that discussion for a little while because it does seem, in fact, that the revenues are still there,” she said. That said, she highlighted another concern: the divergence between AI-related stocks and every other one in the market. “You’re getting this low correlation across stocks. It’s really messing with the risk statistics of the market,” she said. “You’ve got so much concentration in the market that if you just buy a few stocks, you have really no idea whether they’re going to be volatile or not. That concentration, which clearly is just getting bigger and bigger, is particularly worrisome.”
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