The Rally Has Two Tests This Week

GOOD MORNING, Wall Street bounced Friday, but it did not repair the week. The S&P 500 and Nasdaq both snapped three-week winning streaks as long-term Treasury yields, oil and Iran risk repeatedly pushed against the equity rally. Now two of the market's biggest assumptions get tested at once: Nvidia reports Wednesday into an AI trade that still carries much of the earnings story, and Kevin Warsh makes his Jackson Hole debut Friday with the 30-year Treasury yield recently at its highest level since 2007. The setup is simple: profits need to stay strong enough to outrun a higher cost of capital.

MARKETS | TLDR

Wall Street bounced Friday but still lost the week: The Dow rose 0.98%, the S&P 500 gained 0.43% and the Nasdaq added 0.44%, but the S&P still fell 1.43% for the week and the Nasdaq lost 2.05%.
Oil finished a second strong week: Brent settled Friday at $94.39 a barrel and gained 6.39% for the week, while WTI closed at $87.06 and rose 5.66% as Hormuz traffic stayed constrained and Washington threatened tougher sanctions on Iran.
The bond market remained the equity market's pressure point: The 30-year Treasury yield reached its highest level since 2007 during the week, keeping borrowing costs and growth-stock valuations at the center of the market debate even after Treasury expanded long-bond buybacks.

COST OF CAPITAL

The Bond Market Is Starting to Set the Rules

Stocks spent last week moving with Treasury yields. Equities rallied when long-term yields fell on Wednesday, sold off when yields rebounded Thursday and recovered only partially Friday. The 30-year Treasury yield had reached its highest level since 2007 before the Treasury Department doubled the planned size of certain long-dated bond buybacks in an effort to improve market liquidity.

That matters because this is no longer just a fixed-income story. Long-term Treasury yields are the benchmark against which mortgages, corporate borrowing and equity valuations are priced. The transmission is especially important for AI: Nvidia and its customers are participating in an infrastructure buildout that requires hundreds of billions of dollars for chips, data centers, networking and power. Even when demand stays strong, a higher financing rate raises the return those projects must generate to justify the capital.

Treasury's intervention offered relief, not a solution. The underlying pressures — heavy government borrowing, inflation uncertainty and geopolitical risk — remain in place, while Fed Chair Kevin Warsh has deliberately stepped away from the kind of forward guidance markets once used as an anchor. Jackson Hole therefore matters less as a search for one rate call and more as a test of how much volatility investors should expect when the market itself has to infer the policy path from each new data point.

AI TEST

Nvidia Is No Longer Just an Earnings Report

Nvidia reports second-quarter results Wednesday with the Philadelphia Semiconductor Index down roughly 5% over the prior week. The company has become the cleanest public proxy for the AI infrastructure cycle, but its relevance now extends beyond chip demand. Nvidia has recently teamed up with six major financial institutions on platforms targeting more than $500 billion of AI infrastructure financing.

That makes the earnings test broader than another revenue beat. Investors need evidence that hyperscaler and AI-lab spending remains strong enough to support the next wave of data-center construction, while margins and supply conditions show that Nvidia can continue converting that demand into profits. The company is also increasingly connected to the financing architecture around its customers, making the sustainability of AI capex part of the Nvidia story itself.

The stakes are higher because AI has been one of the central supports for U.S. equity earnings while rates have moved against valuations. A strong report can reinforce the profit side of that equation; it cannot control the discount rate. This week will test both pieces separately: Nvidia on Wednesday, then Warsh on Friday.

HEADLINES

Iran says new U.S. sanctions will fail: Tehran remained defiant ahead of Washington's promised new sanctions, while Reuters described shipping through the Strait of Hormuz as virtually stalled — keeping the conflict tied directly to global energy supply rather than diplomacy alone.
U.S. services growth hits its strongest pace in nearly two years: S&P Global's flash services PMI rose to 56.8 and pushed the composite index to its highest since April 2022, suggesting third-quarter growth could accelerate even as the Fed continues confronting above-target inflation.
Manufacturing tells a weaker story than services: U.S. manufacturing growth slowed as precautionary inventory building faded and Iran-related supply disruptions persisted, showing that the economic rebound is becoming increasingly dependent on services.
Ross Stores shows value retail still has demand: Shares rose 4.4% Friday after better-than-expected results and a higher annual profit forecast, a useful consumer signal at a time when higher energy and borrowing costs are squeezing household budgets.
Bitcoin catches the liquidity trade: Bitcoin rose 6.4% Friday to its highest level since mid-May, lifting Robinhood and Coinbase, as alternative assets benefited from renewed debate over Treasury intervention, the dollar and long-term U.S. borrowing costs.

UPCOMING

PCE inflation — August 26: The Fed's preferred inflation gauge will determine whether resilient services growth and higher oil prices are translating into enough price pressure to keep rate-hike risk alive.
Nvidia earnings — August 26: The week's biggest corporate test will show whether AI infrastructure demand remains strong enough to support one of the market's most important earnings narratives despite tighter financial conditions.
Marvell earnings — August 27: Marvell offers a second read on custom AI silicon, networking and data-center spending, useful for checking whether demand is broad across the infrastructure stack rather than concentrated in Nvidia alone.
Kevin Warsh at Jackson Hole — August 28: Warsh's first Jackson Hole appearance as Fed chair comes after a volatile week in long-duration bonds and will be watched for how he frames inflation, growth and a policy regime with less forward guidance.

DEEP INSIGTHS

Nvidia Earnings and Jackson Hole Will Test the Rally's Two Pillars

This is useful as a map of the week rather than a prediction. It connects Nvidia's role in AI infrastructure financing with the rise in long-term borrowing costs and shows why corporate earnings and monetary policy are no longer separate narratives for the market.

Treasury Buybacks and the Dollar-Debasement Debate

Read this for the second-order implications of Treasury's expanded long-bond purchases. The immediate goal is market liquidity, but investors are debating whether repeated attempts to suppress long-term borrowing costs could shift pressure into the dollar — a useful framework for understanding why bonds, currencies, gold and equities are increasingly moving as one macro trade.