Rates Raise the Bar

Stocks snapped a three-week winning streak as rising long-term Treasury yields, higher oil prices and renewed questions about AI valuations weighed heavily on growth stocks. The Federal Reserve’s July minutes reinforced that economic activity remained solid but inflation was still elevated, with three members favoring a rate increase. Expanded Treasury buybacks and resilient business-activity data supported a broad rebound Friday, but not enough to erase the week’s losses.

Reflecting modest realized volatility, the VIX index held mostly below 16 during the week while the VIX futures curve remained firmly in bullish contango (upward-sloping) formation. Similar to the July rotation, the restrained VIX and upward-sloping curve suggest that broader market stress remained contained despite weakness in technology shares.

This week brings two major tests for the market’s competing growth and inflation narratives. Nvidia reports Wednesday, providing an important read on AI demand and the sustainability of elevated capital spending. The same day brings readings on the Fed's preferred measure of inflation, PCE, followed by the Federal Reserve’s Jackson Hole Symposium from August 27–29. Markets will also monitor oil prices and renewed pressure surrounding Iran and the Strait of Hormuz.