THE FED JUST CHANGED THE GAME. IS THE AI RALLY IN TROUBLE?
WARSH SENT A VERY CLEAR MESSAGE
Kevin Warsh didn't come to Jackson Hole to reassure markets. He came to remind them that inflation is still the problem.
His message was blunt: 65 months of elevated inflation.
And despite two years of progress, the improvement has been… modest. Even worse for equity bulls, Warsh said the latest CPI and PCE numbers haven't convinced him that underlying inflation has meaningfully improved. That was enough.
RATE-HIKE ODDS JUST EXPLODED
Before Warsh's speech: September hike probability: 35% After the speech: 58%
Rate
That's a massive repricing in a single day. Treasury yields moved higher. Rate-sensitive technology stocks got hit.
And $NVIDIA(NVDA)$, after exploding +8.7% following earnings, gave back much of the move, falling 4.6%. The $NASDAQ(.IXIC)$ finished -0.52%.
BUT HERE'S THE PART THE MARKET CAN'T IGNORE
Warsh wasn't bearish on the economy. Quite the opposite.
He said the economy appears to have strengthened and described both Main Street and Wall Street as remarkably resilient. And corporate America is backing him up. With 97% of S&P 500 companies reporting Q2 earnings: Earnings growth = 52%
That's the strongest growth rate since the Covid rebound in Q2 2021. So we have a fascinating setup:
Strong economy, Explosive earnings growth, AI spending still accelerating
BUT…Inflation remains sticky, bond yields are rising, september rate-hike odds are climbing, tech valuations remain highly sensitive to rates…
THIS IS THE REAL MARKET BATTLE
The question isn't: "Is the economy strong?" It clearly is.
The question is:
CAN EARNINGS GROWTH OUTRUN HIGHER INTEREST RATES?
That's the battle now. If earnings continue growing at this pace, higher rates may simply become a valuation problem the market can absorb.But if inflation stays sticky and yields continue climbing…
The market may eventually be forced to reprice the entire AI trade. And that's where things get interesting.
LET'S SETTLE THE DEBATE
What wins from here?
-
A) EARNINGS: 52% earnings growth overwhelms higher rates.
-
B) THE FED: Sticky inflation forces higher rates and eventually pressures equities.
-
C) AI WINS: AI productivity and earnings growth are powerful enough to keep the bull market alive.
-
D) BOTH: The bull market survives, but expect significantly more volatility.
Drop A, B, C or D below.
And if you think the market is entering its most important phase of 2026, repost this and let's get the debate going.
Sound off in the comments.
If you found this analysis valuable, Like, Repost, and Follow for more market insights and investment discussions.
This summary is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.
[Salute]
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
