Nvidia beat again, but hot inflation put a hike on the table

Good morning. Two big things landed side by side yesterday. After the close, Nvidia again beat the market's lofty expectations, and July PCE, the inflation gauge the Fed values most, came in hotter than hoped. Core prices were up 3.3% from a year ago and 0.2% from a month earlier, still well above the Fed's 2% goal.

That number changes the rate outlook. Fed officials have said they could raise rates if prices do not cool, and the reading is seen as strengthening the case for a hike in September. The open question is whether today's high inflation reflects one-off shocks such as tariffs and war, or an overheating economy, and the Fed has not said clearly. That is why Friday's Jackson Hole speech matters so much. In a CNBC survey of Fed watchers, 80% said Chair Warsh needs to spell out his view of the economy more clearly.

The market held its breath for Nvidia. Despite the hot inflation data, the S&P 500 rose only 0.1% and the Nasdaq barely moved. Oil, meanwhile, fell for a third day on news that Iran and Oman are discussing a temporary shipping lane through the Strait of Hormuz. Traffic is still only about five ships a day, though, far from normal.

There is a notable rotation too. As the AI excitement cools, money is moving into stocks that pay high dividends or buy back shares. Even Ed Yardeni, one of Wall Street's best-known optimists, said he would not jump into the AI trade right now.