Nvidia Earnings & Fed Inflation Watch

What Happened

Nvidia reported second-quarter revenue of $96.2 billion, up 106% year-over-year, and issued guidance for $108 billion next quarter. CEO Jensen Huang forecast 70% revenue growth for fiscal 2028, far exceeding analyst estimates. Data center revenue hit $89 billion, up 117% from last year. The chip giant maintained a stunning 75% gross margin and returned $26 billion to shareholders through buybacks and dividends.

Why It Matters

Nvidia's blowout results ease fears that the AI spending boom is losing steam, addressing concerns about whether we're in another AI bubble. The company's ability to sustain triple-digit growth while maintaining industry-leading margins confirms that hyperscalers like Microsoft, Amazon, and Google are still pouring capital into AI infrastructure. This validates the tech rally that's powered the S&P 500 to new highs and suggests AI investments are translating into real revenue, not just hype.

Market Impact

What Happened

The Fed's preferred inflation gauge showed headline PCE rising 3.7% year-over-year in July, matching June and coming in 0.1 percentage points hotter than expected. Core PCE, which strips out food and energy, held at 3.3% annually—meeting forecasts but still 1.3 percentage points above the Fed's 2% target. Consumer spending growth slowed sharply to flat on an inflation-adjusted basis, down from a 0.4% gain in June.

Why It Matters

Sticky inflation at nearly double the Fed's target keeps pressure on the central bank to hold rates higher for longer. With the next FOMC meeting on September 15-16, investors had hoped for clearer signs that price pressures were cooling. Instead, the data shows inflation progress has stalled, complicating the Fed's path forward and keeping bond yields elevated. This matters for stocks because higher rates pressure valuations, especially for growth companies trading at premium multiples.

Market Impact

What Happened

The 10-year Treasury yield eased to 4.65% after hitting a 20-month high of 4.75% last week. The 30-year yield also pulled back from its 20-year high of 5.3%. Treasury Secretary Scott Bessent announced plans to at least double bond buybacks using the department's general account, though investors remain skeptical about the program's effectiveness. Lower oil prices after the U.S. tightened Iran sanctions also helped ease near-term inflation fears.

Why It Matters

Treasury yields are the foundation for all asset pricing—mortgages, corporate debt, and stock valuations all move in relation to government bond rates. The recent surge to multi-decade highs reflects investor concerns about persistent deficits, AI-driven debt issuance, and the Fed's inflation fight. While the pullback offers some relief, yields remain far above 2023 levels, keeping borrowing costs high for consumers and businesses. For stocks, elevated yields make bonds more attractive and pressure equity valuations.

Market Impact

What Happened

Major indexes closed modestly lower on Wednesday as investors positioned ahead of Fed Chair Kevin Warsh's Friday speech at the annual Jackson Hole Economic Symposium. The S&P 500 fell 0.12%, the Nasdaq dropped 0.16%, and the Dow edged down 0.08%. The VIX volatility index declined, suggesting investors are taking a measured approach. Markets are in a wait-and-see mode with the next FOMC meeting scheduled for September 15-16.

Why It Matters

Jackson Hole speeches often provide critical signals about the Fed's policy direction. Investors want to know whether Chair Warsh will signal any shift in the central bank's stance given sticky inflation and weakening economic data. With inflation at 3.7% and unemployment at 4.1%, the Fed faces a difficult balancing act. Any hints about the September meeting could trigger significant market moves, especially with earnings season winding down and economic data taking center stage.

Market Impact