This Week

Last week was a bit of a rollercoaster — starting with nerves over fading odds of a September Fed rate cut and ending with fresh index highs after Powell’s Jackson Hole speech, which seemed to put that cut back on the table. This week, the spotlight shifts to Nvidia’s earnings and the PCE inflation report, both due late in the week. In the meantime, it’ll be worth watching how investors digest Friday’s rally after a weekend to think it over, especially as investors remember all the data yet to come before the September FOMC. More on that shortly, but first, some headlines from over the weekend:

• Powell ‘holds the key’ to the next Fed rate move as divided policymakers will likely fail to reach a consensus again, JPMorgan says (Fortune)

  • Federal Reserve Chairman Jerome Powell opened the door to a rate cut at the central bank’s meeting in September after months of maintaining a more hawkish stance, stoking a furious rally on Wall Street. But don’t expect a unanimous decision among policymakers, and Powell may be the decisive factor, according to JPMorgan. A consensus view on Wall Street for a rate cut next month doesn’t mean there will be a consensus on the Federal Reserve as policymakers still appear divided. In his Jackson Hole speech on Friday, Chairman Jerome Powell opened the door to a rate cut at the central bank’s meeting in September after months of maintaining a more hawkish stance, stoking a furious rally on Wall Street. His emphasis on growing risks to the labor market coupled with a more muted warning on the inflationary impact of tariffs marked a shift in his tone. But not everyone on the Federal Open Market Committee sounded as dovish, including Kansas City Fed President Jeffrey Schmid. That sets up another FOMC meeting with dissenting votes, after two policymakers voted to lower rates last time, going against the majority that kept rates steady.

• Why Morgan Stanley says the market and the economy are telling ‘diverging’ stories (CNBC)

  • Equities are going higher, but the U.S. economy isn’t exactly keeping up, Morgan Stanley is warning in a new report led by strategist Ariana Salvatore, as stocks continue to rise even while key economic signals weaken. “Tariffs are a clear headwind to margins for certain industries,” Ariana explained, “but the overall market cap weight of these groups is limited.” “In short,” Ariana added, “the negative impacts are concentrated in sectors that do not represent a significant portion of S&P market cap, while the tailwinds are more dispersed among a broader cohort that drives index-level performance.”

• Rising Risk for the U.S. Economy: A Job Market That Is Just ‘Meh’ (WSJ)

  • The labor market has moved front and center for the Federal Reserve, highlighting its fragility and risk to the economy. The good news is that unemployment remains low, and employers haven’t been all that interested in laying people off. The bad news is that companies haven’t been all that interested in hiring, either.

• Higher tariffs are kicking in. Here’s what Walmart and other retailers said about their impact (CNBC)

  • As some of the biggest names in retail, including Walmart and Home Depot , delivered earnings results in recent weeks, they updated Wall Street on how they and their shoppers are responding to President Donald Trump’s wave of tariff increases. The takeaway? Tariff costs are rising for retailers, and they’ve had to get creative to avoid widespread price hikes.

    Yet consumer spending has largely stayed strong so far — and the pinch from higher duties hasn’t been as severe as some companies had feared. Compared with their concerns in the spring, retail executives struck a measured tone and said they don’t expect their costs, or customers’ prices, to jump dramatically.

• Bubble Risks Grow as China’s Stock Bull Run Defies Economy Angst (Bloomberg)

  • China’s economy is buckling under the weight of tariffs and a deep-rooted property crisis, yet stocks are extending their bull run — a disconnect that’s stirring doubts on the rally’s staying power. In just the past month, onshore stocks have added almost a trillion dollars to their market value, the Shanghai Composite Index has hit a decade-high and the CSI 300 Index has taken its advance from this year’s low to more than 20%. That’s when nearly every recent economic indicator — from consumption trends, home prices to inflation — has brought red flags for investors. The rally has been driven by cash-rich investors shifting into stocks amid a lack of alternatives. While the market’s steady advance may suggest less risk of a sudden correction, some analysts are warning that a bubble is in the making. Nomura Holdings Inc. is cautioning against “irrational exuberance,” while TS Lombard is calling the mismatch a stand-off between “market bulls and macro bears.”

• Apple to Kick Off Three-Year Plan to Reinvent Its Iconic iPhone (Bloomberg)

  • A look at Apple's three-year iPhone redesign plan, starting with iPhone Air this fall, foldable with Touch ID in 2026, and a curved-glass “iPhone 20” in 2027 — Apple is weeks away from its big product launch event, where it will lay the foundation for a once-in-a-generation iPhone overhaul.

• Wall Street Favors Vanilla Options Rather Than VIX to Hedge (Bloomberg)

  • One reason for the omission of VIX options is cost. The calls screen as expensive relative to S&P 500 puts, Bank of America Corp. strategists highlighted in a research note last week. This is mostly reflective of the VIX option volatility increasing relative to that for the S&P 500, which has been weighed down by rock-bottom realized moves. The so called “vol-of-vol” looks expensive on a relative basis, which is consistent with other measures of convexity generally being rich. Moreover, the steepness in the VIX futures term structure results in higher carry costs. As futures tend to roll down the curve to converge with the spot index — rather than the spot rising to the level of the futures for an extended period — the calls become further out-the-money, losing value.

Implied volatility got crushed Friday with the VIX now at the lows of 2025. It feels in someways to be a capitulation following Jackson Hole. But as mentioned in Friday’s note, vol may be too low now, especially heading into a seasonally volatile period. If SPX pushes through 6500 on the back of NVDA earnings, the move is unlikely to stay a slow grind — a burst of FOMO/euphoria is possible. On the flip side, if NVDA disappoints or upcoming data (PCE, jobs, CPI, PPI) sours the mood, demand for downside protection in Sept and Oct could spike quickly after a long stretch of complacency. Either way it would make current vol levels a bit mispriced:

This Week’s Expected Moves:

• SPX/SPY: 1.2% (6390-6540)

  • QQQ: 1.6%

  • IWM: 2.0%

  • TLT: 1.2%

  • USO: 2.7%

A couple quick notes on the above: SPY and QQQ weekly volatility is almost entirely backloaded into Thursday/Friday, pricing in NVDA’s report Wednesday evening (typically around 4:20pm) and Friday morning’s PCE. Meanwhile, IWM vol has been converging toward QQQ, despite IWM’s +4% surge on Friday. As we noted last week, this could signal a shift toward a more macro-driven, correlated market after weeks of divergence — at least that’s what options are implying. Lastly, Oil/USO vol has come in notably over the past week.

Here’s this week’s calendar, highlighted by GDP on Thursday and PCE on Friday:

Economic Calendar: 

• Monday

  • 10am - New Home Sales

• Tuesday

  • 8:30am - Durable goods

  • 10am - Consumer Confidence

• Thursday

  • 8:30am - GDP

  • 8:30 - Initial Jobless Claims

  • 10am - Pending Home Sales

• Friday

  • 8:30am - PCE

  • 10am - UoM Consumer Sentiment

Nvidia is the highlight this week, but we also get some interesting reports from MRVL, DELL, BABA, and retailers like KSS, DG and BBY. One note, it does seem that the market got the memo about some of these post earnings gaps we’ve seen recently as there are some eye popping expected moves ahead of this week’s:

Earnings (with expected moves):

• Tuesday 

  • After-hours: OKTA 11%, MDB 14%, BOX 9%

• Wednesday

  • Pre-market: KSS 14%, ANF 13%

  • After-hours: NVDA 6.5%, SNOW 10%, CRWD 8%, HPQ 6.5%

• Thursday

  • Pre-market: DG 7.7%, BBY 8%, DKS 7%

  • After-hours: MRVL 9.5%, DELL 8%, GAP 11%, ULTA 7%, AFRM 13%, AMBA 11%

• Friday

  • Pre-market: BABA 6%

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