Stories for the Rest of Summer

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In the Home Stretch of Summer

The end of summer is, historically, a quiet period for the business world. The government is in recess, and many people usually go on vacation around this time. As a result, financial markets typically see lower trading volumes until things pick up again in early September. 

But there are still a few major events and themes investors should keep an eye on before then: the Federal Reserve’s Jackson Hole speech, oil price volatility, and Nvidia’s earnings report. Let’s dig into each of those and their market-moving potential.

The speech at Jackson Hole

Chairman Kevin Warsh is scheduled to speak at the Fed’s Jackson Hole Economic Policy Symposium on Aug. 28. This annual speech doesn’t include a Federal Open Market Committee (FOMC) vote or rate decision, but it has historically been one of the most important messages a Fed chair sends for the year. 

Investors will be listening for any indication of whether or not the Fed will hike rates in 2026. After July’s benign inflation report, markets reduced their expectation for a rate hike in September to only 35%, but are still pricing in one hike before year end. 

The speech at Jackson Hole isn’t the only thing that could affect stocks and bonds, but it’s a big one. Treasury yields have been particularly volatile of late, partly due to Warsh’s preference for less forward guidance from the Fed, and the market’s worries over inflation and ballooning national debt.

Yields on long-term Treasuries (10 years or longer) remain elevated — so much so that the U.S. Treasury recently announced an increase in buybacks of long-dated T-bonds after 30-year yields hit their highest levels since 2007. In doing so, the government is repurchasing its own debt to help stimulate demand for those bonds, stabilize prices, and keep borrowing costs from rising too high.

Hawkish comments from Warsh at Jackson Hole could cause more volatility in Treasury yields, which would kick off an interesting tug-of-war between the Fed and the Treasury. 

Oil

Investors are fatigued with the story of oil prices, which is understandable, but we can’t ignore them because oil prices matter — a lot. 

A growing number of professional investors, many of whom have expertise in energy markets, say that markets are underpricing the supply risks that the ongoing war presents. At the moment, WTI crude oil is trading around $85/barrel, which is notably higher than prewar levels but a far cry from the highs earlier this year. 

Even with oil prices remaining subdued despite all of the geopolitical strife, Energy has been the best performing sector in the S&P by a wide margin: The sector is up 41% year-to-date, followed by Technology at 21%. And it’s not just a few names driving the bus, as 86% of Energy stocks are trading above their 200-day moving average. 

Oil prices are a gauge for multiple things. They can serve as an indicator of inflation (lower oil prices, lower inflation, all things equal), but also as a possible signal for further upside for the Energy sector (higher oil prices, higher stocks, all else equal).

We are bullish on Energy for the long-term and still believe it’s attractive, even after the strong run we’ve seen.

AI Demand

Last but certainly not least, AI is still driving markets. Many AI-related companies are making headlines besides Nvidia, but the company remains the biggest fish in the pond, and that makes its Aug. 26 quarterly results possibly the most important of the earnings season. 

For what it’s worth, the market’s sensitivity to Nvidia’s earnings has waned in recent quarters — the market is currently pricing in an implied earnings-related move of 4.9%, the lowest in nearly four years. Nonetheless, Nvidia still serves as the single-best company for a gauge of AI demand.

Measuring AI demand is tricky though. There isn’t currently a universal measure of how many tokens (i.e. units of data for AI models) are being used, but we do have a measure of the cost to rent graphics processing units (GPUs, the semiconductor chips produced by companies like Nvidia). The rising cost of GPUs suggests that AI demand is still strong.  

Nvidia’s earnings report will once again serve as a major story for the AI investment cycle. Investors don’t have much of a reason to believe the results will shock markets, but the event will be a major headline maker nonetheless.

Every Last Drop

We plan to squeeze every last drop out of summer, and hope you will too. As you soak in the remaining days of sunshine and cookouts, keep at least one eye on the markets while these stories develop. The periods when we least expect volatility can sometimes produce the most. 

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