Wall Street ended last week lower after several weeks of strong performance. The S&P 500 fell around 1.4%, while the Nasdaq declined roughly 2.1% and the Dow Jones lost approximately 0.9%. Although the major indexes recovered some ground on Friday, the weekly balance remained negative.

The pressure came mainly from three areas: rising Treasury yields, weakness in semiconductor and artificial intelligence-related stocks, and higher oil prices amid geopolitical tensions.

Bond Yields become a major concern again

One of the most important moves last week took place in the U.S. bond market.

The yield on the 30-year Treasury bond reached levels not seen since 2007, while the 10-year yield also remained elevated. Higher long-term rates are putting pressure on stocks because they increase borrowing costs and make some riskier investments relatively less attractive.

This is particularly important for growth and technology companies. When yields rise, the future earnings expected from a company become less valuable in present-value terms, which can put pressure on valuations.

That is why, in the current market environment, interest rates can be just as important as corporate earnings themselves.

Artificial Intelligence enters a key week

Artificial intelligence continues to be one of the main drivers of the market, but investors will face an important test this week.

Nvidia will report its quarterly earnings on Wednesday, August 26. The company has become one of the main indicators of demand related to artificial intelligence, meaning its results—and especially its outlook for the coming quarters—could have an impact far beyond its own stock.

The market is already expecting very strong growth, which means that good results alone may not be enough. Investors will also want to see whether demand for chips and AI infrastructure is continuing to grow at a pace that justifies the enormous investments being made by major technology companies.

Last week, the Philadelphia Semiconductor Index fell approximately 5%, signaling that investors are beginning to demand more evidence that the AI investment cycle can remain sustainable.

Oil adds more pressure

Oil was also one of the major themes last week.

U.S. crude prices rose more than 6% during the week, driven mainly by geopolitical tensions and uncertainty surrounding Iran and the broader situation in the Middle East.

For markets, higher oil prices represent a risk because they can increase transportation, energy and production costs. If those increases are passed on to consumers, they could make it more difficult for inflation to continue falling.

This creates a challenging combination for the Federal Reserve:

Higher oil prices → greater inflationary pressure → less room to cut interest rates.

And higher rates for longer can put additional pressure on stock valuations.

The Federal Reserve is also in focus this week

The other major event this week will be the Jackson Hole symposium, which begins on Thursday.

On Friday, Federal Reserve Chair Kevin Warsh is scheduled to deliver one of his most important speeches since taking office. Investors will be watching closely for any signals about his assessment of inflation, economic growth and the future path of interest rates.

Before that speech, new economic data will also be released, including the PCE price index, one of the Federal Reserve's most closely watched inflation measures. The data could influence market expectations for upcoming monetary policy decisions.

Markets enter a week full of signals

What makes this week particularly important is that several major market drivers will come into focus at almost the same time.

On one side, Nvidia will provide a new signal about the strength of the artificial intelligence cycle.

On the other hand, the PCE data will provide insight into how inflation is evolving.

And finally, Jackson Hole could offer clues about the Federal Reserve's view on interest rates.

At the same time, investors will continue watching Treasury yields and oil prices.

This means that a positive development in one area could be offset by a negative signal elsewhere. For example, stronger-than-expected Nvidia results could boost the Nasdaq, but an unexpected rise in inflation could push yields higher and limit that advance.

What will Wall Street be watching this week?

The main points of focus will be:

• Nvidia earnings: revenue growth, chip demand and guidance for the coming quarters.

• U.S. PCE inflation: a key reference point for interest-rate expectations.

• Jackson Hole: particularly Kevin Warsh's speech on Friday.

• Treasury yields: their direction will remain important for growth and technology stocks.

• Oil prices: another significant factor for the inflation outlook.

• Technology and semiconductor stocks: particularly sensitive to Nvidia's results and interest rates.

After a negative week for Wall Street, investors enter one of the month's most important weeks with several key questions still unanswered.

Artificial intelligence continues to provide strong momentum for markets, but valuations are high and expectations are increasingly demanding. At the same time, rising Treasury yields and higher oil prices are creating new risks for inflation and interest rates.

Nvidia, inflation data and signals from the Federal Reserve could determine whether the market regains its momentum or whether volatility continues in the weeks ahead.

The opinions in the preceding commentary are as of the date of publication and are subject to change.  Information has been obtained from third party sources we consider reliable, but we do not guarantee the facts cited are accurate or complete.  This material is not intended to be relied upon as a forecast or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. We may execute transactions in securities that may not be consistent with the report’s conclusions.  Investors should consult their financial advisor on the strategy best for them.  Past performance is no guarantee of future results. For illustrative purposes only. Does not represent an investment recommendation. For more information, please see our Social Media Disclosure.

Securities offered by Northbound Securities, LLC Member FINRA/SIPC 

Sources: Bloomberg, Reuters Energy, CNBC Markets, ISM Manufacturing Report