Investors head into the final week of August with risk appetite buoyed by Federal Reserve Chair Jerome Powell’s dovish pivot at Jackson Hole, but with several critical data releases and earnings reports that could test market momentum.
Powell’s speech on Friday marked a clear shift in tone, with the Fed chair warning that recent softness in US labor data suggests “downside risks to employment are rising” and that such risks “can do so quickly in the form of sharply higher layoffs and rising unemployment.”
Markets interpreted the remarks as effectively front-loading a 25 basis point rate cut ahead of the Fed’s September 16 to 17 meeting, unless upcoming jobs or inflation data provide an unexpected upside surprise.
“Unless we see a major positive surprise in the next jobs data, or a major quickening in inflation numbers, September will bring the first rate cut since last September’s 50 basis point cut,” Swissquote Bank senior analyst Ipek Ozkardeskaya said.
“Then, the data – especially the inflation data – will tell if there could be further rate relief into the year-end.”
This week, attention turns to Thursday’s US GDP update and Friday’s release of the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) index.
Economists expect Q2 GDP to show a 3% rebound after tariff-related distortions weighed on the prior month’s reading.
Core PCE is forecast to rise 0.3% month-on-month in July, pushing the annualized rate toward 2.9%, a potential five-month high.
A stronger print could complicate the Fed’s path to easing, while a softer reading would reinforce expectations for a September rate cut.
“But whether strong GDP or inflation data will derail the dovish Fed expectations is yet to be seen. Powell’s message was too clear to be questioned regarding a September action,” Ozkardeskaya said.
Several Fed officials are also due to speak this week, including Governor Christopher Waller and regional presidents from New York, Dallas, and Richmond. Their remarks will be closely parsed for confirmation or pushback on Powell’s dovish shift.
Another key event this week is Nvidia’s earnings report, due on Wednesday - a major test for the chipmaker whose shares are near a record high, up 32% so far this year.
Nvidia previously guided for $45 billion in revenue, plus or minus 2%, with margins above 70%. That would mark nearly 50% year-over-year growth, but with the stock already priced for perfection after a series of analyst upgrades, any sign of slower demand or rising competition could spark volatility.
Other big names reporting this week include Okta and MongoDB on Tuesday, Kohl’s, Snowflake and CrowdStrike on Wednesday, Marvell Technology Group and Dell Technologies on Thursday and Alibaba Group Holdings on Friday.
With equities near record highs, the combination of inflation data, Fed commentary, and Nvidia’s earnings will set the tone for whether this rally carries into September.