Fed Holds the Line on Inflation While AI Benefits Spread Across Tech

A Narrow Weekly Gain After a Fed-Driven Friday Selloff

The S&P 500, Nasdaq, and Dow posted fractional weekly gains, regaining ground from the previous week’s modest declines. The S&P 500 gained 0.05% and the Nasdaq 0.09%, as stocks traded in a narrow range for the third consecutive week following a four-day rally that began on July 30.

Stock indexes wavered after Federal Reserve Chair Kevin Warsh emphasized inflation risks in a speech Friday morning at a symposium in Jackson Hole, Wyoming. With recent inflation readings remaining well above the Fed’s 2% target, Warsh said the central bank “must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.” That triggered a Friday afternoon selloff of about 1% in the S&P 500.

The modestly positive weekly results for large-cap stocks did not extend to smaller companies. The Russell 2000 Index fell 1.4% on Friday in the wake of the Fed chair’s speech.

Greater Clarity on AI and Policy Heading Into September

Although September has historically been a more challenging month for markets, traders are entering this month with greater clarity on two issues that have dominated the investment landscape. Nvidia’s earnings provided fresh evidence that the AI investment cycle remains intact, while Warsh’s Jackson Hole speech reinforced the Fed’s commitment to restoring price stability.

Recent results from several high-profile software companies helped push back against the narrative that AI will simply disrupt the software industry. Shares of Salesforce rose in response to earnings, while the broader software group has begun to recover some of the significant ground lost relative to semis over the past year. While leadership rotations among hyperscalers, semiconductors, and software are likely to continue, the latest earnings season suggests AI’s benefits may be spreading more broadly across the technology sector. After lagging the broader market since peaking in early June, the sector could be positioned for improved relative performance.

My Technical Read: The Trend Is Still Higher

Historically, September has been the weakest month of the year for stocks, producing both the lowest average return and the lowest probability of positive performance. This seasonal tendency can be amplified during midterm election years, when investors often face elevated political uncertainty.

That said, the overall technical trend is still higher until that changes. In my opinion, way too many traders believe lower is coming and are positioned that way. A massive short squeeze is definitely possible, but we await the market’s decision.

Key SPX and NDX Technical Levels to Watch

SPX support at the 7,620-40 zone, 7,565-70, 7,295-7,313, and possibly 7,050. Resistance at 7,800-81, 7,980-8,000, and possibly 8,250.

NDX support at 28,875, 28,230, and 27,200. Resistance now at 29,760, 30,200, and 30,650.

In any case, as we always do at TheTechTrader.com, we’ll “Trade What We See, Not What We Think.”