Good Morning Investors,
The S&P 500 closed lower for a fifth straight day, down 0.4%, with the Nasdaq and Dow off 0.3% each. Walmart's results, hotter-than-expected jobless claims, and the shadow of today's Jackson Hole speech from Fed Chair Jerome Powell weighed on sentiment.
At 10 a.m. ET, Powell takes center stage in what is likely his final appearance as Fed Chair at this conference, making it as much a legacy moment as a policy update. The street will be scanning every word for hints on a September cut and any signal of a framework shift toward earlier inflation risk management. With political pressure mounting and economic signals mixed, the challenge is to keep the door open without walking through it.
Opening Bell: Futures Steady Ahead of Powell
US equity futures point to a modest rebound after five days of S&P losses: Dow ($DIA ( ▲ 1.94% )) +0.3%, S&P 500 ($SPY ( ▲ 1.54% )) +0.2%, Nasdaq 100 ($QQQ ( ▲ 1.54% )) +0.2%. European markets opened cautiously higher. In Asia, Japanese equities gained on financial strength and a weaker yen, while Shanghai jumped to a decade high on AI optimism. The dollar is near two-week highs, oil is flat, and gold is under mild pressure.
Macro Landscape: Powell's Swan Song and AI Friction
The July FOMC minutes revealed the rare sight of two governors, Waller and Bowman, dissenting in favor of an immediate 25bp cut to insure against labor-market downside. That split sets the stage for today's speech, where Powell must balance "solid" versus "slowing" labor descriptors and address how tariffs are complicating disinflation.
Politics will be in the room whether named or not. Pressure around Governor Lisa Cook after mortgage-fraud allegations and the White House's barbs at the Fed underscore the importance of defending central bank independence, a message with as much market impact as rate guidance.
Framework shift is the sleeper theme. The 2020 pivot to flexible average inflation targeting is likely to be reined in, restoring a pre-emptive stance on inflation. That would outlast this cycle, influencing how the Fed reacts to future supply shocks and trade pass-throughs.
The data contradiction continues: While jobless claims rose more than expected, S&P Global's manufacturing activity hit a three-year high, perfectly illustrating the challenge Powell faces in parsing conflicting signals.
Nvidia ($NVDA ( ▲ 1.72% )) sits at the heart of the US-China tech standoff. Its China-specific H20 AI chip is already restricted, and reports say production has been paused after Beijing urged local firms to adopt domestic alternatives. Nvidia is lobbying both Washington and Beijing for a path forward while also developing a potential follow-up chip for the Chinese market. This is less about today's earnings multiple and more about the strategic control of AI infrastructure. Any shift in US export policy could ripple across the entire AI value chain.
The Meta Google Cloud deal belongs in this theme too. Meta ($META ( ▲ 2.12% )) has committed over $10 billion over six years, largely for AI infrastructure, showing the capital intensity of scaling AI and Google's ($GOOGL ( ▲ 3.17% )) ambition to win marquee clients in the cloud wars.
Market Leadership: Rotation Still in Play
Selling in megacap tech this week has coincided with resilience in equal-weight, small, and mid-cap indices. Our earlier rotation into these segments is holding up well. The S&P 500 Equal Weight Index is flat on the week despite the cap-weighted index sliding 1.2%, concrete evidence the broadening is real. If Powell leans hawkish and we see a deeper September pullback, the setup for re-entry into select AI names improves.
Corporate Highlights
Walmart fell over 4% despite posting another strong quarter and raising full-year guidance. Sales growth remains resilient, supported by surging e-commerce and delivery, but management flagged selective price increases to offset rising tariff costs. Value positioning, logistics monetization, and growing higher-income customer traffic keep Walmart differentiated in a pressured retail environment, but lofty expectations leave no room for missteps.
Ross Stores beat quarterly profit expectations and reinstated annual guidance, with demand for discounted apparel offsetting tariff pressures, a positive read-through for value retail positioning ahead of the holidays.
Zoom raised full-year revenue and profit forecasts on hybrid work resilience and AI integration into products, supporting the durability of remote work infrastructure demand.
Tesla ($TSLA ( ▲ 6.22% )) raised the price of its most expensive Cybertruck model by $15,000 to $114,990, adding a "Luxe Package" despite softer-than-expected sales, signaling either confident demand or margin protection.
Boeing Defense workers continue striking, keeping fighter jet production idle as union officials press for better terms, adding to industrial supply chain headwinds.
Analysts' Recommendations
Ross Stores: JPMorgan target raised to $160 from $156, citing resilient demand for discounted goods.
Ulta Beauty: JPMorgan to $600 from $525, supported by cost leverage and a strong product pipeline.
Intuit: JPMorgan trims to $750 from $770 on softer Mailchimp growth guidance.
Today's Calendar (ET)
10:00 Fed Chair Powell speaks at Jackson Hole
Earnings: BJ's Wholesale, Buckle
Final Thought
Powell's speech will likely aim for nuance, a cautious nod to a September cut without binding the Committee's hands. The immediate market reaction will hinge on his labour market language, but the lasting takeaway will be whether he signals a structural shift back toward earlier inflation pre-emption.
Our positioning remains constructive: overweight small and mid-caps, equal-weight S&P exposure, and ready to selectively add back AI infrastructure on deeper dips. The rotation out of megacaps is healthy. The next big catalyst for tech sentiment arrives next week with Nvidia's earnings, which could either reverse the rotation or accelerate it.
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Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.