Markets Turn Selective Ahead of Nvidia and Fed as Tech Weakness Tests Investor Confidence

Investors Are Repricing Risk Before the Week’s Biggest Events

The stock market is not waiting for Nvidia (NVDA) or the Federal Reserve to deliver their messages before adjusting expectations.

Technology has declined for seven consecutive sessions, its longest losing streak since September 2022, while the PHLX Semiconductor Index has fallen 18% since the beginning of July. Meanwhile, futures markets are pricing roughly a 75% probability that the Federal Reserve will raise short-term interest rates by December.

Those moves leave the market approaching Nvidia’s Wednesday earnings report and Fed Chair Kevin Warsh’s Jackson Hole speech Friday from a more cautious position. Rather than broad weakness, however, recent performance points to increasing differentiation between sectors and even within the AI trade itself.

Key Points

• Technology has declined for seven consecutive sessions and the PHLX Semiconductor Index is down 18% since early July, showing reduced enthusiasm ahead of Nvidia earnings.
• Futures markets now assign roughly a 75% probability to a Fed rate increase by December, raising the importance of Kevin Warsh’s Jackson Hole comments.
• AI spending continues to expand rapidly, but sharply different returns across hyperscalers and infrastructure suppliers show investors becoming more selective about where that spending creates value.

Market Leadership Is Shifting Before the Catalysts Arrive

Recent price action shows a market that remains resilient at the index level while becoming increasingly selective underneath the surface.

That distinction was visible Monday. The Dow Jones Industrial Average gained 0.3%, while the S&P 500 declined 0.3% and the Nasdaq Composite fell 0.8%. Technology was the weakest-performing S&P 500 sector, allowing the less tech-heavy Dow to outperform.

The divergence matters because technology weakness has become persistent rather than isolated. Seven consecutive declining sessions represent the sector’s longest losing streak since September 2022.

Semiconductors have experienced an even larger adjustment. The PHLX Semiconductor Index has fallen 18% since the start of July.

At the same time, other areas of the market have demonstrated considerable strength. The Energy Select Sector SPDR ETF is up more than 40% this year, while Freeport-McMoRan (FCX) has gained more than 50% and traded at a record high.

Barclays data provide historical context for that divergence. Energy, materials and technology have generally held up better during Fed rate-hiking cycles since the mid-1990s, while financials and traditionally defensive sectors have faced greater pressure from tighter financial conditions and higher discount rates.

The current market response therefore extends beyond a simple decline in technology. Investors are reassessing where earnings growth and business momentum can withstand a potentially more restrictive interest-rate environment.

Is the Market Questioning AI Demand or the Cost of Delivering It?

The decline in semiconductor stocks comes despite continued expansion in AI infrastructure spending.

Hyperscalers including Alphabet (GOOGL), Amazon (AMZN), Microsoft (MSFT), Meta Platforms (META) and Oracle (ORCL) collectively spent $330 billion during the first half of the year. Analysts estimate another $469 billion of capital expenditures during the second half, followed by more than $1 trillion across major data-center operators next year.

The spending itself therefore remains substantial.

What has changed is the market response to it.

Alphabet shares fell 7% last month after the company raised its planned capital expenditures to as much as $205 billion from $190 billion. The reaction showed that larger AI budgets are not automatically being treated as positive news when investors are also considering the cost of those investments.

Performance elsewhere in the AI ecosystem reinforces that shift.

CoreWeave (CRWV), Western Digital (WDC), Seagate Technology (STX), Arista Networks (ANET) and Vertiv (VRT), identified as companies with high exposure to AI capital expenditures, have generated an average return of 100% this year. The hyperscalers funding much of that infrastructure expansion have averaged a negative 3.6% return.

The contrast suggests that investors are distinguishing between companies financing the AI buildout and businesses supplying the infrastructure required to construct it.

That makes Nvidia’s earnings particularly important. The report arrives not because AI investment has disappeared, but because semiconductor stocks have already undergone a substantial repricing while spending expectations remain extremely high.

Nvidia and Warsh Will Test Two Different Market Assumptions

Wednesday and Friday will address separate questions that are currently influencing equity prices.

Nvidia’s earnings will provide another measure of the AI infrastructure cycle after the semiconductor sector’s 18% decline since early July.

Warsh’s Jackson Hole speech will address the other side of the market equation: monetary policy.

Futures markets are pricing approximately a 75% probability that the Fed will increase short-term rates by December. Investors are looking for more information about how Warsh intends to move inflation sustainably toward the central bank’s 2% target.

Core PCE inflation data due Wednesday will add another input before his Friday appearance.

Bond yields connect the two developments.

Rising yields pressured equities last week, particularly technology, before Treasury intervention paused the bond selloff. Higher yields can weigh on equity valuations while also raising financing costs at a time when technology companies are committing hundreds of billions of dollars to AI infrastructure.

The market is therefore approaching Nvidia and Jackson Hole with some adjustment already underway. Semiconductor prices have fallen, technology leadership has weakened and expectations for higher short-term rates have increased.

The question now is whether the information arriving this week validates that repricing or forces another adjustment.

What It Means for Investors

The current stock market update shows less evidence of investors abandoning risk altogether than of investors becoming more selective about which risks they are willing to accept.

AI infrastructure spending continues to grow. What has weakened is the assumption that every company connected to that spending should benefit equally.

The difference between hyperscaler and infrastructure-supplier performance is one example. The strength of energy and materials alongside weaker technology provides another.

Interest rates add a second filter. With markets assigning roughly 75% odds to a Fed rate increase by December, companies are being evaluated against a backdrop in which capital may become more expensive and higher bond yields can compete more directly with equity valuations.

That makes this week unusual because the two major catalysts address different sides of the same valuation equation.

Nvidia can provide information about the earnings and demand supporting AI investment. Warsh can provide information about the monetary conditions against which those future earnings will be valued.

Recent market volatility suggests investors have already begun adjusting to both possibilities.

Conclusion

The market enters Nvidia earnings and Jackson Hole with expectations already changing beneath the major indexes.

Technology has weakened for seven consecutive sessions, semiconductor stocks have undergone a much larger pullback since July, and futures markets increasingly reflect the possibility of another Fed rate increase.

Yet AI infrastructure spending continues to expand, while energy, materials and selected AI infrastructure companies have maintained strong performance.

That combination points to a market becoming more discriminating rather than moving uniformly in one direction.

Nvidia’s results will show whether one of the central engines of the AI investment cycle continues to support the spending narrative. Warsh’s Jackson Hole speech will help define the monetary-policy environment surrounding it.

The market has already started repositioning. This week will provide important evidence on whether that adjustment has gone far enough.

FAQs

Why has technology weakened ahead of Nvidia earnings?

Technology has declined for seven consecutive sessions, while the PHLX Semiconductor Index has fallen 18% since the beginning of July. The weakness comes as investors evaluate large AI capital expenditures, semiconductor valuations and rising bond yields.

What does the market currently expect from the Federal Reserve?

Futures markets are pricing roughly a 75% probability that the Federal Reserve will raise short-term interest rates by December. Fed Chair Kevin Warsh’s Jackson Hole speech is expected to provide additional information about the central bank’s approach to inflation and monetary policy.

Is AI infrastructure spending slowing?

The provided information does not show a slowdown. Hyperscalers spent $330 billion during the first half of the year, analysts estimate another $469 billion in the second half, and projected spending across major data-center operators exceeds $1 trillion next year.

Why are investors becoming more selective within the AI trade?

Performance has diverged significantly. Five companies identified as having high exposure to AI capital spending have averaged a 100% return this year, while the hyperscalers funding much of the infrastructure expansion have averaged a negative 3.6% return.

Why do Nvidia earnings and Fed policy matter at the same time?

Nvidia’s results provide information about demand and earnings within the AI infrastructure cycle, while Fed policy influences interest rates and bond yields. Together, those factors affect both corporate growth expectations and the valuations investors assign to future earnings.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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