The Rally Is Looking Beyond AI

GOOD MORNING, Wall Street bounced Friday, but this was not another megacap-AI session. The Dow led, materials and healthcare outperformed, and crypto-linked stocks surged as bitcoin jumped. The S&P 500 and Nasdaq still finished the week lower after long-term Treasury yields repeatedly pressured growth stocks. At the same time, fresh PMI data showed U.S. services accelerating while manufacturing slowed under Iran-related supply disruptions. The market is not abandoning AI. It is testing whether the rally can broaden while rates stay high and the economy keeps running hot enough to complicate the Fed.

MARKETS | TLDR

Stocks rebounded Friday but still lost the week: The Dow rose 0.98% to 53,277.01, the S&P 500 gained 0.43% to 7,674.37 and the Nasdaq added 0.44% to 26,180.46; for the week, the S&P fell 1.43%, the Nasdaq lost 2.05% and the Dow declined 0.85%.
The rebound broadened beyond megacap tech: Materials, healthcare and financials were among Friday's strongest areas, while Robinhood jumped 13.7%, Coinbase rose 8.2% and Strategy gained 6% as bitcoin rallied 6.4%.
Oil stayed elevated into the weekend: Brent settled at $94.39 a barrel, up 6.39% for the week, while WTI closed at $87.06 and gained 5.66% as constrained Hormuz traffic and tougher U.S. rhetoric toward Iran kept supply risk priced in.

MARKET BREADTH

The Market Is Trying to Build a Rally Without Megacap AI Doing All the Work

Friday's rebound looked different from many of this year's strongest sessions. The Dow outperformed the Nasdaq, materials and healthcare led gains, financials were strong and crypto-linked stocks surged. The S&P 500 rose 0.43%, but the Nasdaq gained roughly the same amount rather than pulling decisively ahead. That came after a week in which the Philadelphia Semiconductor Index and other AI-sensitive names had been pressured by rising long-term yields.

That matters because one of the central questions for the equity market is whether returns can broaden beyond the companies most directly tied to AI infrastructure. A broader rally is healthier if earnings and economic activity can support banks, retailers, industrials and other sectors while expensive technology stocks absorb a higher discount rate. Friday offered a small piece of evidence in that direction: equities rose even though megacap tech was not the only engine.

One session does not establish a rotation. The S&P 500 and Nasdaq still snapped three-week winning streaks, and Nvidia's earnings next Wednesday can quickly put AI back at the center of the tape. But the composition of Friday's rebound is worth watching. If higher yields persist, market leadership may depend increasingly on companies whose cash flows arrive sooner, whose valuations are lower or whose earnings benefit directly from stronger nominal growth.

GROWTH MIX

Services Are Accelerating. Manufacturing Is Paying for the War.

S&P Global's flash U.S. services PMI rose to 56.8 in August from 54.6 in July, the strongest reading since December 2024. The composite output index climbed to 56.0, its highest since April 2022, and S&P Global said the surveys were consistent with third-quarter economic growth approaching a 3% annualized pace — roughly double the second quarter's 1.5% rate.

The manufacturing side was less clean. Factory PMI slipped to a five-month low of 53.2 as reduced inventory building and supply disruptions linked to the U.S.-Iran conflict slowed momentum. That split matters for markets because it shows an economy that is still expanding strongly enough to support corporate revenue while the goods sector remains exposed to geopolitical bottlenecks and higher energy costs.

For the Fed, resilient services are a mixed blessing. Strong activity and the best services hiring growth in 19 months reduce the urgency to support the labor market, while inflation is still above target and oil has risen sharply over the past two weeks. The economy can remain good for earnings and uncomfortable for rates at the same time. That is exactly the tension Kevin Warsh will inherit when he speaks at Jackson Hole next Friday.

HEADLINES

Bitcoin gives the rebound a different kind of leadership: Bitcoin rose 6.4% Friday, lifting Robinhood, Coinbase and Strategy, as investors responded to a softer dollar and renewed debate over Treasury intervention in long-duration bonds.
Ross Stores shows value retail still has pricing power: Shares rose 4.4% after the off-price retailer raised its annual profit forecast, suggesting bargain-focused consumers remain active even as higher energy and borrowing costs pressure household budgets.
Treasury's bond-market fix is still being tested: Secretary Scott Bessent said expanded long-bond buybacks could grow further after yields rebounded from Wednesday's initial relief, keeping the effectiveness of Treasury intervention in focus.
Iran risk remains a physical-supply story: Vessel traffic through the Strait of Hormuz was about half the prior day's level as Washington threatened tougher sanctions, reinforcing why energy prices remain a macro variable rather than just a geopolitical headline.
Nvidia has become part supplier, part capital-market infrastructure: The company has partnered with six financial institutions on platforms targeting more than $500 billion of AI infrastructure financing, making access to capital increasingly relevant to its future chip demand.

UPCOMING

PCE inflation — August 26: The Fed's preferred inflation measure will show whether resilient services activity and higher energy costs are keeping price pressure too firm for policymakers to relax.
Nvidia earnings — August 26: Nvidia will test whether AI infrastructure demand is still strong enough to support the market's most important growth narrative after a week of pressure on semiconductor shares.
Marvell earnings — August 27: Marvell offers another read on custom silicon and networking demand, useful for checking whether AI spending remains broad across the infrastructure stack.
Kevin Warsh at Jackson Hole — August 28: Warsh's first Jackson Hole appearance as Fed chair comes with services growth accelerating, inflation still above target and long-term Treasury yields elevated — a difficult mix for rate guidance.

DEEP INSIGTHS

U.S. Services Drive the Strongest Business Growth Since 2022

Read this for the composition of U.S. growth. Services are accelerating and hiring is improving, while manufacturing is slowing under weaker inventory demand and Iran-related supply disruptions. That split helps explain why earnings can remain resilient even while inflation and rate risks stay uncomfortable.

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

This is the best map of what comes next. It connects Nvidia's AI-infrastructure role with the bond-market selloff and Warsh's move away from forward guidance, showing why next week's corporate and macro catalysts are really testing the same question: can earnings growth outrun a higher cost of capital?