Investors Await Nvidia Earnings and 2 Major Economic Events
Is inflation high because of tariffs and the Iran war, or just because the economy is running too hot?
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Action is mixed and slow early Wednesday as the primary market story is that we are waiting for Nvidia (NVDA) earnings tonight. The stock has been under pressure since August 17 and only bounced Tuesday after six straight down days, its longest losing streak since 2022.
That selling is not about the quarter. It is due to concerns about the reaction. The worry is that no matter how good the report is, the likelihood of a sell-the-news response is high, and any stumble will be punished harshly.
We saw this in May. After the last blowout report the stock could not generate sustained momentum, rolled over, and eventually found support around $190. It is hard to know what it would take to trigger a durable positive reaction.
The Fed Problem Underneath It
The other event this week is Fed Chair Kevin Warsh at Jackson Hole on Friday. Unlike his predecessors, Warsh has intentionally avoided signaling his policy preferences. Aside from stating that the Fed has done a lousy job fighting inflation and that he is determined to get it under control, there is little visibility about how he intends to do that.
The question that is hanging over Warsh is whether inflation is high because of one-off shocks like tariffs and the Iran war, or because the economy is simply running too hot. The answer determines whether rates go up, and it is splitting the FOMC committee. Three officials voted to raise last month, the most in a decade, and others have signaled they are open to joining them. Warsh has not said where he stands on the issue.
Warsh has argued for years that the Fed’s framework cannot handle this kind of inflation. There is no model for the Fed to follow when there is an investment boom like AI that lifts prices without causing a rapid rise in wages.
That is precisely what the AI buildout is doing. Chip prices, memory, server costs, and power are all rising because of enormous capital spending, and none of it is coming through the wage channel the Fed’s models are built around.
Warsh’s primary message so far as Chair is that the Fed’s tools do not fit the problem it is now confronting and it is not at all clear what he is going to do about it.
The Market Is Not Reacting
Bonds have bounced over the last few days and oil has weakened, but the market response has been mild. There is more at play here than just energy prices.
Tuesday’s market was a bit different than what we have seen recently. Crude dropped nearly 5% to a session low of $80.23 on cooling tensions between Iran and its Gulf neighbors, and the 10-year Treasury fell nearly seven basis points to 4.64%. The indexes rose uniformly for once, with the Nasdaq up 0.7% and breadth running two to one positive but the gains were tepid. In a different environment that combination would have caused an explosion of buying but market players are obviously concerned about inflation data and the upcoming speech from Warsh.
PCE inflation data arrives Wednesday morning and it matters more than usual, since core has been running around 3.3% and the Fed has now been above its target for more than five years. A hot number is going to be a problem, especially as it will increase concerns about a hawkish Warsh on Friday.
Game Plan
My positioning has not changed. My cash levels are high, I’m working on my shopping list, and staying very selective with new buys.
Between PCE this morning, Nvidia tonight, and Warsh Friday, we have three events in three days for this market to find a direction. I have no interest in guessing how this is going to develop. The setups I want to buy will come out of the volatility rather than ahead of it so the only logical approach is to stay patient.
At the time of publication, Rev Shark had no positions in any securities mentioned.
