I'm Dan Sheehan, a wealth advisor / financial planner based in Charlotte, NC. I work with high earners, families, and business owners on the things that actually move the needle over a lifetime: building the plan, managing the portfolio, and getting the tax picture right. Most of my clients came to me knowing they were doing well but suspecting they were leaving something on the table. Usually they were. This newsletter is where I share the thinking behind that work, one topic at a time.
Good morning investors,
There are two events this week that will set the tone for the rest of the year, with both of them happening on Wednesday. Nvidia will report their earnings and the Fed's Jackson Hole symposium gets underway with Kevin Warsh due to speak. Nvidia will tell us whether the AI trade still has the numbers to justify itself and Jackson Hole will give us the clearest look yet at how this Fed thinks, at a moment when the bond market is doing a good deal of its work for it.
The S&P fell 1.4% to 7,674, its worst week since mid-July, with the tech sector down 3.2% and the Nasdaq off 2%. Futures are slightly lower again this morning, tech leading the declines with names like Coherent, Lumentum, and SanDisk down 4% to 5%. Yields have eased slightly with the 10-year near 4.71% and the 30-year at 5.25%, after the 30-year topped 5.3% last week for the first time in nearly two decades. Korea fell more than 3% overnight and Gold keeps climbing, up again this morning to a three-month high.
Jensen's Turn
I heard Joshua Brown call Jensen Huang the AI Fed chair recently, and I think there's something to it. Side note, I have been a fan of Josh for a while, so I think there's something to most things he says. Wednesday's Nvidia print has the potential to move half the companies in the S&P 500 directly, given how much of the market's earnings and capex now runs through this one company.
I believe Nvidia needs to deliver the numbers we're already expecting, and then the more interesting part is how the stock reacts to them. Expectations are set at roughly $92 billion in quarterly revenue, up around 97% from a year ago, with earnings close to doubling. The stock is having its best month since April, which isn't a surprise because it tends to run into its prints. That run is part of what makes the reaction so hard to call. When a stock has already climbed into the number, a good result can still sell off simply because perfection was priced in. We saw exactly that with Samsung and others earlier in the summer.
What keeps Nvidia interesting despite all this is the valuation is that it trades at roughly a market multiple, which for a company growing this fast is not where you'd expect it after the run it has had. Bloomberg reported over the weekend that Nvidia has told customers its next-generation Vera Rubin and Blackwell servers will see price increases north of 15%, which speaks to demand that still outstrips supply. It is also worth watching how / if Nvidia pushes into open-source AI and widens its customer base from a handful of hyperscalers to millions of individual developers and even governments. That would change the shape of the business. For now, the job Wednesday is simpler. Show the demand is real and let the reaction tell us where sentiment actually sits.
The Bond Market Is Fun to Watch and Hard to Manage Around
The bond market has been the most interesting thing in markets for two weeks, and I'll be honest that as someone who writes about this every morning, that makes the job of market commentator a whole lot more enjoyable. As the person actually managing money, it's far less enjoybale! The swings in long yields are driving volatility in equities, and they're also hitting the part of a portfolio that's supposed to be the stabilizer. When bonds move like this, the defensive side stops playing defense.
This has real consequences for how retirement portfolios have behaved this year. When the safe part of the portfolio is swinging around alongside stocks, the diversification you were relying on isn't doing its job in the way it used to. This is why having more than one source of income in retirement has mattered so much this year. Leaning entirely on the bond side for income and stability has been a rougher ride than most people expected, and spreading those income streams across different sources has been one of the more important things we've worked on with clients through this stretch.
As for what's driving the yields, the Treasury tried to step in last week. It expanded its buyback of longer-dated debt from $2 billion to at least $4 billion, and Bessent later said it could go higher. Yields fell the day of the announcement and were climbing again within 48 hours. The reasons behind the selling don't bend to a buyback. US debt crossed $40 trillion last week, the deficit keeps growing, oil is elevated with the Iran conflict unresolved, and a large new factor sits underneath all of it.
A meaningful part of the pressure on yields now comes from the large amount of borrowing tied to AI infrastructure. Companies are issuing record amounts of debt to fund data centers, and that supply competes with the government for the same pool of money. You can see an example of this this morning with SoftBank issuing around $6.3 billion in bonds, and Alibaba fell as much as 10% in Hong Kong after announcing a $10.2 billion share sale to fund its own AI push, days after its capex jumped 75% and profit dropped by the same amount. The money to build all this has to come from somewhere, and increasingly it's coming from the bond and equity markets at the same time.
I will add that my view on the debt is that it worries me less than it worries most people. I'm not saying it never matters but it has been a source of worry for several decades and the economy has kept working through it. Debt is approaching roughly 100% of GDP, close to a one to one ratio with the economy. When you break down who actually owns it, a large share is held domestically, which means much of what the government pays in interest flows back to American investors rather than out of the country. That changes the math on how much it drags, and it's why I treat it as a long term issue to monitor rather than a near term threat.
What the Treasury Move Does to the Fed
The buyback created an odd tension with the Fed that will carry into this week. Warsh has said he's content to let higher yields tighten conditions on their own, which spares the Fed from having to raise rates itself. The Treasury just tried to push those same yields down. Two arms of policy pulling in opposite directions.
The read that matters most this week is Wednesday's PCE inflation number which is the Fed's preferred gauge. A soft print supports the case for holding in September and takes some pressure off the long end. A hot one revives the calls for a hike. Goldman's Jan Hatzius thinks the temporary drivers like tariffs and energy fade from here, which would help. Warsh's speech at Jackson Hole will fill in the rest of the picture, and given how little he's given the market to work with so far, it carries more weight than a chairman's remarks usually would.
Bonds Versus Stocks Looks Like a Real Choice Again
One consequence of higher yields changes how a portfolio gets built. With the 10-year near 5% and equities trading around 19 times earnings, the two are offering something close to the same yield. A 19 multiple works out to an earnings yield of roughly 5.3%, so you can hold a Treasury paying about 5% with reasonable predictability, or hold stocks yielding about 5.3% with earnings growth and upside on top, but a lot more volatility to sit through.
For most of the past 15 years, with bonds paying 1% or 2%, there wasn't much to weigh. Now there is, and it makes allocation more interesting than it's been in a long time. It also pushes back against the idea that high yields have to sink stocks. Strong growth, strong earnings, and heavy AI investment can keep equities rising even with yields where they are. Only about 3% of S&P 500 stocks now yield more than the 10-year, the lowest since 2007, which tells you how far the income comparison has shifted toward bonds.
Where I Land
My read on valuation is the anchor here as the market's multiple has come down even as prices have risen, from about 23.5 times to roughly 19 times. Earnings have done the work, which is the healthy version of a rising market and the reason I stay constructive. That hasn't changed through two weeks of bond driven selling.
Mid-August through October is historically choppy, and I continue to expect moves in both directions as we head toward the midterms. This week gives the market plenty to react to, with PCE, Jackson Hole, and Nvidia stacked into three days, any one of which could set the tone. I'd treat weakness here as the opportunity it usually turns out to be rather than something to run from.
The Chicago Fed activity index today, consumer confidence Tuesday, then PCE, Warsh, and Nvidia Wednesday. If any of this has you wondering whether your portfolio fits your goals rather than the day's headlines, that's a conversation I'm always glad to have.
Best regards,
Dan Sheehan [email protected]
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Market Pulse with Dan Sheehan is a personal market commentary newsletter and is independent from my employer. The content is provided for informational and educational purposes only and reflects my views as of the publication date, which may change without notice. Nothing contained herein should be construed as personalized investment, legal, tax, or financial advice, or as a recommendation to buy or sell any security. Any positions discussed represent my own views and may not be suitable for every reader's objectives, financial situation, or risk tolerance. Information is derived from publicly available sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Readers should conduct their own research and consult their own professional advisers before making financial decisions.