A Promising Week Ends With Concerns Over Inflation From Fed

The week started with promise and ended with a plot twist. Stocks drifted higher through Thursday on the back of a blowout earnings report from Nvidia, then Friday morning brought a hawkish speech from Federal Reserve Chair Kevin Warsh that reset the tone. When the closing bell rang, the S&P 500, Dow, and Nasdaq had all eked out gains of about half a percent. Small-company stocks, though, went the other way, falling about 1.5%.

Wednesday belonged to Nvidia. The company reported quarterly revenue of $96 billion, nearly double what it earned a year ago, and management’s outlook for the rest of the year was equally strong. Nvidia is the third most valuable company in the world, and when it delivers a quarter like that, the entire market takes notice.

Then Friday arrived and Federal Reserve Chair Warsh took the podium in Jackson Hole, Wyoming for his first major speech as Chair. His tone was more hawkish (Federal Reserve speak for wanting to keep interest rates high, or raise them further, to fight inflation) than markets had been expecting. He said inflation “isn’t meaningfully slowing” and the Federal Reserve still has “work to do.” By the end of the day, the market’s odds of a September rate hike had jumped from about 35% to nearly 57%. Just enough salt on the market’s parade to take the shine off Wednesday’s rally.

Data sources: Yahoo Finance, CNBC, Reuters, Investing.com, as of August 28, 2026 close. Past performance is not indicative of future results.

Three very different stories captured the action last week. One was about a single company printing extraordinary numbers. Another was about a Federal Reserve Chair delivering his first major message. The third was a reminder that the world outside the market keeps moving too.

The most interesting story underneath the tape was the split between large caps and small caps. The Russell 2000 index of smaller American companies fell about 1.5% on the week even as every major large-cap index gained ground. Smaller companies typically carry more floating-rate debt and are more sensitive to changes in borrowing costs. When the market prices in a more hawkish Federal Reserve, that group tends to feel it first. Watch the small caps in the weeks ahead. They often serve as the market’s early warning system on rate concerns. In other news, Marvell fell 10% Friday despite reporting solid earnings, undone by cautious forward guidance. And PayPal dropped sharply after a potential acquisition by Advent and Stripe fell through.

It’s Jobs Week. A busy calendar of employment data culminates in Friday’s August Jobs Report, arguably the most important economic release of the month. Before that, we get JOLTS (a monthly count of job openings across the economy) Tuesday and ADP (which tracks private-sector payrolls) Wednesday, both of which set up the main event. The ISM Manufacturing PMI also lands Tuesday. That is a survey of purchasing managers at factories where any reading above 50 signals expansion and below 50 signals contraction. Broadcom earnings Thursday will give another read on the artificial intelligence spending cycle.

Friday’s jobs report may be the pivotal data point of the entire fall. Economists are expecting a modest gain of around 80,000 jobs after July’s surprise loss of 23,000, with the unemployment rate holding near 4.2%. A strong number would give Warsh more ammunition for the hawkish case he outlined at Jackson Hole. A weak number, particularly if it comes with downward revisions to prior months, could quickly reverse the rate hike bets that jumped last week.

Broadcom’s Thursday earnings are the other event to watch. Alongside Nvidia, Broadcom is one of the most important chipmakers in the artificial intelligence buildout. Investors will be listening closely for signals about the pace of AI-related orders, which have been the single most important driver of the market’s year-to-date gains.

Let’s take a moment to unpack what happened Friday, because it matters for how the fall might unfold. Retail investors sometimes wonder why one speech from a Federal Reserve official can move stocks around the world. Here is why. The Federal Reserve has one central job: setting monetary policy for the United States. Their main tool is a very short-term interest rate called the federal funds rate, which banks use when they lend to each other overnight. When the Federal Reserve raises that rate, borrowing gets more expensive across the entire economy. Mortgages, auto loans, corporate debt, credit cards, all of it moves in sync. When they cut, the opposite happens.

When Federal Reserve officials speak with a preference toward keeping rates high, or even raising them further, they are described as “hawkish.” When they lean toward lowering rates to support growth, they are described as “dovish.” It is that simple. The words come from the idea that hawks are aggressive and doves are peaceful. In investing terms, hawkish typically means tougher on inflation and less friendly to stocks. Dovish typically means easier on growth and more supportive of stocks. Warsh’s speech Friday was clearly hawkish. He said inflation remains too high, the Federal Reserve’s job on prices is not done, and interest rates are their most important tool to finish that job.

Why does that message move stocks? Because rate expectations shape almost everything in financial markets. When the market thinks rates are heading higher, or will stay high longer, three things tend to happen. Borrowing costs for companies and consumers rise, which can slow growth. Bonds and cash become more attractive competition for investor dollars, since they offer higher guaranteed yields. And the future earnings that stocks are supposed to generate become worth less in today’s terms, which pressures valuations. The parts of the market most sensitive to those forces (small companies, growth stocks, technology names) tend to move first. That is likely why we saw Nvidia give back most of its earnings gain Friday and why the Russell 2000 fell 1.5%.

None of this changes the underlying trend of a growing economy and expanding corporate earnings. Nvidia’s report proved the artificial intelligence spending cycle is real and accelerating. Consumer spending is holding up. Manufacturing is expanding. September is historically the weakest month of the year for stocks, and this one may live up to that reputation. But the underlying setup heading into the fall remains constructive. The path may get bumpier from here, but the destination looks the same.

If you have any questions about your portfolio or what any of this means for your specific situation, please don’t hesitate to reach out to your CIAS Investment Adviser Representative. We are here to help you navigate these markets with confidence.

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