The S&P 500's rally has leaned on a strong corporate earnings season, and that season is now ending. Kevin Warsh's hawkish tone at Jackson Hole has pushed up the odds of a September rate hike, while lingering doubts about AI spending and a dip in consumer sentiment add further pressure on the index.
Rate-hike odds jump after Warsh's Jackson Hole remarks
US stock indices reacted cautiously to Kevin Warsh's hawkish rhetoric at the Jackson Hole symposium, and the market's response fits a historical pattern: since 1999, the S&P 500 has risen or fallen by 3% or more four times during central bank governors' meetings at Jackson Hole, with an average gain of just 0.4% over those years.
Warsh believes the current level of interest rates is not restrictive enough to hold back economic growth. As a result, the probability of a federal funds rate hike in September has jumped to 60%, and futures markets now put the odds of two rounds of monetary tightening in 2026 at 50/50.
Earnings season has carried the rally so far
The Atlanta Fed's leading indicator forecasts US GDP growth of 4.6% in Q3, with Apollo Global Management estimating that about 0.2 percentage points of that figure comes from the rollback of tariffs. Meanwhile, corporate profits rose 53% in April-June, according to LSEG data, while revenue increased 16% year-on-year, keeping valuations, including price-to-earnings ratios, from looking stretched.
However, the escalation of the conflict in the Middle East and the resulting rise in oil prices are pushing up Treasury bond yields, raising borrowing costs for S&P 500 issuers and holding back earnings growth.
AI doubts and softer sentiment add pressure
Fears about the payoff from artificial intelligence investment have not gone away. Nvidia shares rose almost 9% before losing more than half of those gains in the following session, underscoring the market's nervousness around the sector.
The sell-off was compounded as the University of Michigan reported a deterioration in consumer sentiment for the first time in three months. With the earnings season drawing to a close, investors' attention now turns to macroeconomic data, monetary policy and geopolitical risk, with the release of US labor market data for August next in focus.
Source: ActionForex
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