S&P 500 awaits Nvidia, inflation and Fed Chair Warsh

SPX500 rally hinges on key events

SPX500 rallies over 10% this year and is well positioned to extend its gains to new all-time highs, largely thanks to continued optimism around the AI boom and a strong earnings season. The hyperscalers funding the physical AI build-out, Meta Platforms, Microsoft, Amazon.com and Google, delivered mostly strong results and reiterated their commitment to AI investments, targeting a combined 2026 capex of $720-$745 billion this year. Key players in the global chip supply chain like Intel, Micron and TSMC see continued demand as proliferation moves to a more aggressive phase thanks to the rise of inference and agentic AI. Meanwhile, the US earnings season supports the stock market, as a revenue growth rate for the S&P 500 of 15% so far in Q2, according to FactSet ^[1], would mark the fastest pace in over four years if it materialises.

However, the SPX500 march has stalled recently as markets contemplate a series of risks, which can dampen market mood and fuel corrections. Sentiment around AI is fickle as investors contemplate spending against return on investments and other risks. Meanwhile, inflation is cooling but remains well above the central bank's 2% target, and new Chair Warsh has sparked uncertainty over the Fed's policy path. Alongside mounting deficit concerns, bond yields are rising, pushing borrowing costs higher and weighing on equities.

All these dynamics come to the fore this week, with NVIDIA's earnings that can shape the entire AI trade, coupled with the PCE inflation update and Fed Chair Warsh's debut Jackson Hole speech that can shape monetary policy expectations and the trajectory of the bond market. Against an uncertain macro-geopolitical backdrop, the outcome of these high-profile events has the potential to spark volatility and determine the next leg of the SPX500.

Nvidia earnings: a barometer for the AI trade

Nvidia's leadership makes its Wednesday earnings essentially a referendum for the entire AI theme and the semiconductor industry, as it reaps the benefits while facing escalating challenges. The company expects an acceleration in revenues and stable margins thanks to continued demand for its AI infrastructure. Strong results and guidance can renew AI optimism and facilitate the advance of the stock market.

Nonetheless, expectations are high and any underwhelming outcome could cast doubt over the AI trade and weigh on Wall Street as markets grapple with a series of distinct risks. Operationally, investors are watching for manufacturing hurdles, supply chain bottlenecks and macro-geopolitical uncertainties that could impact production. Financially, sentiment remains jittery over long-term demand durability, circular financing structures and mounting capital investments that increasingly rely on cash burn, stock offerings and debt issuance rather than pure organic cash flows.

US PCE: inflation closely watched by Wall Street

The July PCE report is released on Wednesday and could verify the cooling inflation observed over the past couple of months. A soft print in the Fed's preferred inflation gauge, right after last week's CPI easing, would strengthen the case for a Fed hold in September, aided by a slowdown in the jobs market. Easing price pressures and prospects that the Fed will refrain from tightening policy would offer Wall Street support.

On the other hand, any upside surprise would increase pressure on the central bank to raise rates. Inflation remains well above the 2% target supported by a mix of elevated oil prices, geopolitical friction in the Middle East, and structural cost push from ballooning defence spending and the AI build-out. This macro tension is mirrored inside the central bank itself: three members voted for a rate hike at the last FOMC meeting, while the minutes warned that "many" participants believe further tightening will be necessary if inflation fails to decline. ^[2]

Fed Chair speech: monitored for policy insights

Fed Chair Warsh delivers his debut Jackson Hole speech on Friday, which has the potential to spark significant volatility given interconnected dynamics. Typically, any remarks that point towards an intention to tighten policy could weigh on the SPX500, whereas any dovish remarks would facilitate its advance. Still, the situation is more complex and Chair Warsh may elect to withhold immediate short-term insights, which in itself may act as a powerful signal for markets.

Ultimately, what markets dislike the most is uncertainty, and that could linger after the speech. The new head of the Fed refrained from offering forward guidance or clear hints around the reaction function at his last policy meeting, which lowered rate-cut bets and reduced conviction that he will act to contain sticky inflation. This rattled both the bond and stock markets, pushing long-term yields higher and the SPX500 lower.

Now the stakes are even higher, as yields keep marching higher on rising fiscal concerns, driving corporate financing and capital costs higher. With the US budget deficit soaring to $432.3 billion in July - the highest in more than five years ^[3] - and total national debt having surpassed $40 trillion, the structural pressure on the long end of the curve has never been more pronounced. Any additional upward pressure on yields - either by expectations of hikes or worries over inflation - could prove to be a persistent drag on the stock market.