#股票交易分享挑战 July CPI fell—are tech stocks safe in August?
The U.S. Bureau of Labor Statistics released July CPI data last night:
Headline CPI was 3.4% year over year (previously 3.5%), core CPI was 2.5% year over year (previously 2.6%), and the month-over-month readings were +0.1% and +0.2%, respectively.
All were in line with expectations.
As soon as the data was released, tech stocks rose across the board in premarket trading, the 2-year Treasury yield fell, and the probability of a September rate hike dropped from 45% the previous day to 42%.
In-line inflation will maintain the no-rate-hike narrative that formed after last week's employment report, but there will be another round of inflation and employment data before the September FOMC meeting, and this story could still change. Last night's CPI did not set a new high; the positive employment narrative was merely not overturned. Stay vigilant, because it could be replaced at any time by the next round of August data.
Tech stocks are safe
I don't think we can say that; conditions need to be attached.
1. In line with expectations is not bullish. Too many people fail to understand this. When the market has already priced in an outcome—for example, CPI falling to 3.4%—and the actual result happens to be exactly that number, the market will not surge simply because inflation really did fall, because the decline was already priced in. The real bullish catalyst is a result better than expected. In the market's eyes, meeting expectations simply means things were not worse; without new information, there is no new reason to reprice. Judging from the size of last night's tech rebound, the market was actually quite restrained. A genuine rally needs to be driven by an upside surprise.
2. At 42%, the rate-hike probability is still basically a coin toss. Falling from 55% to 45% and then to 42% looks like progress in the right direction, but this figure still means the market believes there is a near 50% chance that the Fed will hike rates in September. One hotter-than-expected employment report or a hotter-than-expected August CPI could instantly push it back above 50%. We discussed Kevin Warsh's long-tail effect in that article on Kashkari. Warsh's rate-hike logic is that current rates are simply not restrictive enough. As long as the next round of data does not show a clear cooling, the hawkish argument will not disappear. So the rate-hike alert has not been lifted; it could rebound at any time.
3. Three more data points have yet to be released
August 26: Nvidia Q3 FY2027 earnings. This is the most important single event in August. Nvidia's earnings are a crucial validation of the overall AI capex narrative, and the guidance will directly determine whether the market's confidence in AI demand (the numerator) strengthens or wavers.
August 27–August 29: The Jackson Hole symposium, the second-most important event in August. Warsh has acknowledged his communication mistakes and his failure to sufficiently reinforce the message of price stability. This speech is viewed as a test of whether he can repair his credibility. Whether it sets the tone for a September rate hike, his wording will directly affect the market's expectations for interest rates (the denominator).
September 11: August CPI release, the final inflation data before the September FOMC meeting. This is the real verdict. If August CPI continues to fall, with core CPI declining from 2.5% to 2.4% or even lower, the rate-hike probability could drop below 30%, and tech stocks could breathe a major sigh of relief. If August CPI rebounds to 2.6% or higher, the rate-hike probability will surge, and tech stocks will come under enormous pressure.
4. The underlying inflation picture has not changed. Although July CPI fell, inflation remains stubbornly far from the 2% target. Headline CPI at 3.4% is 70% above the 2% target; gasoline was up 24.6% year over year, meaning the aftershocks of the energy shock are still present, while the situation in the Middle East could deteriorate again at any time; housing inflation was up 3.2% year over year. Although it has declined from before, it remains the largest contributor to the monthly increase. There is also a hidden risk: one-third of the world's fertilizer supply is produced in the Persian Gulf region, and food prices could face new upward pressure before the end of the year. If an escalation of the Middle East conflict drives up fertilizer prices and that feeds through to food, inflation could rebound toward year-end.
So I would rather describe the July CPI decline this way: that 0.1-percentage-point drop was like the water level temporarily falling slightly amid a massive flood. The flood has not receded, and the water level remains far above the dam's 2% target—temporarily stabilized.
The race between the numerator and denominator
The valuation of tech stocks is essentially a fraction. The numerator is AI demand, which is improving; the denominator is interest rates, which are worsening or at least not falling.
The numerator is not visible in today's CPI data. CPI is a macroeconomic data point that describes how inflation is doing but does not tell us how AI demand is doing. The numerator will be reflected in Nvidia's earnings on August 26. If Nvidia sharply raises its Q3 guidance again and Vera Rubin orders exceed expectations, the numerator will improve at an accelerating pace. Even if the denominator is unfavorable, tech stocks can withstand it on the strength of the numerator. If Nvidia's guidance merely meets expectations or expresses caution about competition from custom chips, the numerator will not be strong enough, and if the denominator does not improve, tech stocks will be squeezed from both sides, making August potentially very difficult.
“Under the radar”
The unexpected weakness in July nonfarm employment.
The July nonfarm payrolls report released last Friday showed a net decline in U.S. nonfarm employment in July. This employment report was the real driver behind the rate-hike probability falling from 55% to 45%, because it undermined Kashkari's logic that the economy is too strong and interest rates are not restrictive enough. If employment is truly beginning to weaken, Kashkari's core argument—that corporate earnings are booming, consumers are still spending, and employment remains strong—will not hold up. At least the claim that employment is strong has been disproven. At the same time, it introduced the scenario the market fears most: stagflation. Inflation remains high and prices have not fallen, but the economy and employment are beginning to weaken, causing growth to stagnate. This is the most difficult combination to deal with. If inflation is high and the economy is strong, the Fed can raise rates confidently because the economy can withstand it; if inflation is low and the economy is weak, the Fed can cut rates to stimulate it; but if inflation is high and the economy is weak, raising rates will exacerbate the economic weakness, while not raising rates risks inflation running out of control. There is no good option.
Weak July employment combined with CPI still at 3.4% is an early sign of mild stagflation. If the data ahead continues to show the combination of weak employment and stubborn inflation, the market will not merely face a binary choice over whether to raise rates. Instead, it will face the dilemma of having no good options. In such a dilemma, high-valuation tech stocks are often sold first because they are the most sensitive to uncertainty.
August market outlook
1. The most optimistic scenario, but not the most probable. August CPI continues to fall, Nvidia's earnings guidance is explosive, and Warsh's wording at Jackson Hole is dovish. This combination would push the September rate-hike probability below 30%, drive the 2-year yield down further, and trigger a rebound in tech-stock valuations in August.
2. Base case. The data is neither hot nor cold: CPI is near expectations, Nvidia's earnings meet expectations without a major upside surprise, and Warsh continues to provide no clear signal at Jackson Hole. The rate-hike probability remains in the 40%–50% range, and the market waits for the September FOMC's final verdict amid volatility. August will see neither a major rally nor a major sell-off, but volatility will remain.
3. Most pessimistic scenario. August CPI rebounds, Nvidia's earnings guidance misses expectations or expresses concern about competition, and Warsh sends a hawkish signal at Jackson Hole. This would push the rate-hike probability back above 60%, send long-term rates to new highs, and put tech stocks under significant selling pressure.
At a deeper level, the fundamental conflict facing tech stocks this year is the race between AI demand in the numerator and interest rates in the denominator. You do not know which will reach the finish line first. Today's CPI temporarily slowed the denominator by one step, but we will not know how strong AI demand really is until Nvidia submits its results on August 26. The outcome of this two-legged race cannot be determined by a single CPI report. $MU
The U.S. Bureau of Labor Statistics released July CPI data last night:
Headline CPI was 3.4% year over year (previously 3.5%), core CPI was 2.5% year over year (previously 2.6%), and the month-over-month readings were +0.1% and +0.2%, respectively.
All were in line with expectations.
As soon as the data was released, tech stocks rose across the board in premarket trading, the 2-year Treasury yield fell, and the probability of a September rate hike dropped from 45% the previous day to 42%.
In-line inflation will maintain the no-rate-hike narrative that formed after last week's employment report, but there will be another round of inflation and employment data before the September FOMC meeting, and this story could still change. Last night's CPI did not set a new high; the positive employment narrative was merely not overturned. Stay vigilant, because it could be replaced at any time by the next round of August data.
Tech stocks are safe
I don't think we can say that; conditions need to be attached.
1. In line with expectations is not bullish. Too many people fail to understand this. When the market has already priced in an outcome—for example, CPI falling to 3.4%—and the actual result happens to be exactly that number, the market will not surge simply because inflation really did fall, because the decline was already priced in. The real bullish catalyst is a result better than expected. In the market's eyes, meeting expectations simply means things were not worse; without new information, there is no new reason to reprice. Judging from the size of last night's tech rebound, the market was actually quite restrained. A genuine rally needs to be driven by an upside surprise.
2. At 42%, the rate-hike probability is still basically a coin toss. Falling from 55% to 45% and then to 42% looks like progress in the right direction, but this figure still means the market believes there is a near 50% chance that the Fed will hike rates in September. One hotter-than-expected employment report or a hotter-than-expected August CPI could instantly push it back above 50%. We discussed Kevin Warsh's long-tail effect in that article on Kashkari. Warsh's rate-hike logic is that current rates are simply not restrictive enough. As long as the next round of data does not show a clear cooling, the hawkish argument will not disappear. So the rate-hike alert has not been lifted; it could rebound at any time.
3. Three more data points have yet to be released
August 26: Nvidia Q3 FY2027 earnings. This is the most important single event in August. Nvidia's earnings are a crucial validation of the overall AI capex narrative, and the guidance will directly determine whether the market's confidence in AI demand (the numerator) strengthens or wavers.
August 27–August 29: The Jackson Hole symposium, the second-most important event in August. Warsh has acknowledged his communication mistakes and his failure to sufficiently reinforce the message of price stability. This speech is viewed as a test of whether he can repair his credibility. Whether it sets the tone for a September rate hike, his wording will directly affect the market's expectations for interest rates (the denominator).
September 11: August CPI release, the final inflation data before the September FOMC meeting. This is the real verdict. If August CPI continues to fall, with core CPI declining from 2.5% to 2.4% or even lower, the rate-hike probability could drop below 30%, and tech stocks could breathe a major sigh of relief. If August CPI rebounds to 2.6% or higher, the rate-hike probability will surge, and tech stocks will come under enormous pressure.
4. The underlying inflation picture has not changed. Although July CPI fell, inflation remains stubbornly far from the 2% target. Headline CPI at 3.4% is 70% above the 2% target; gasoline was up 24.6% year over year, meaning the aftershocks of the energy shock are still present, while the situation in the Middle East could deteriorate again at any time; housing inflation was up 3.2% year over year. Although it has declined from before, it remains the largest contributor to the monthly increase. There is also a hidden risk: one-third of the world's fertilizer supply is produced in the Persian Gulf region, and food prices could face new upward pressure before the end of the year. If an escalation of the Middle East conflict drives up fertilizer prices and that feeds through to food, inflation could rebound toward year-end.
So I would rather describe the July CPI decline this way: that 0.1-percentage-point drop was like the water level temporarily falling slightly amid a massive flood. The flood has not receded, and the water level remains far above the dam's 2% target—temporarily stabilized.
The race between the numerator and denominator
The valuation of tech stocks is essentially a fraction. The numerator is AI demand, which is improving; the denominator is interest rates, which are worsening or at least not falling.
The numerator is not visible in today's CPI data. CPI is a macroeconomic data point that describes how inflation is doing but does not tell us how AI demand is doing. The numerator will be reflected in Nvidia's earnings on August 26. If Nvidia sharply raises its Q3 guidance again and Vera Rubin orders exceed expectations, the numerator will improve at an accelerating pace. Even if the denominator is unfavorable, tech stocks can withstand it on the strength of the numerator. If Nvidia's guidance merely meets expectations or expresses caution about competition from custom chips, the numerator will not be strong enough, and if the denominator does not improve, tech stocks will be squeezed from both sides, making August potentially very difficult.
“Under the radar”
The unexpected weakness in July nonfarm employment.
The July nonfarm payrolls report released last Friday showed a net decline in U.S. nonfarm employment in July. This employment report was the real driver behind the rate-hike probability falling from 55% to 45%, because it undermined Kashkari's logic that the economy is too strong and interest rates are not restrictive enough. If employment is truly beginning to weaken, Kashkari's core argument—that corporate earnings are booming, consumers are still spending, and employment remains strong—will not hold up. At least the claim that employment is strong has been disproven. At the same time, it introduced the scenario the market fears most: stagflation. Inflation remains high and prices have not fallen, but the economy and employment are beginning to weaken, causing growth to stagnate. This is the most difficult combination to deal with. If inflation is high and the economy is strong, the Fed can raise rates confidently because the economy can withstand it; if inflation is low and the economy is weak, the Fed can cut rates to stimulate it; but if inflation is high and the economy is weak, raising rates will exacerbate the economic weakness, while not raising rates risks inflation running out of control. There is no good option.
Weak July employment combined with CPI still at 3.4% is an early sign of mild stagflation. If the data ahead continues to show the combination of weak employment and stubborn inflation, the market will not merely face a binary choice over whether to raise rates. Instead, it will face the dilemma of having no good options. In such a dilemma, high-valuation tech stocks are often sold first because they are the most sensitive to uncertainty.
August market outlook
1. The most optimistic scenario, but not the most probable. August CPI continues to fall, Nvidia's earnings guidance is explosive, and Warsh's wording at Jackson Hole is dovish. This combination would push the September rate-hike probability below 30%, drive the 2-year yield down further, and trigger a rebound in tech-stock valuations in August.
2. Base case. The data is neither hot nor cold: CPI is near expectations, Nvidia's earnings meet expectations without a major upside surprise, and Warsh continues to provide no clear signal at Jackson Hole. The rate-hike probability remains in the 40%–50% range, and the market waits for the September FOMC's final verdict amid volatility. August will see neither a major rally nor a major sell-off, but volatility will remain.
3. Most pessimistic scenario. August CPI rebounds, Nvidia's earnings guidance misses expectations or expresses concern about competition, and Warsh sends a hawkish signal at Jackson Hole. This would push the rate-hike probability back above 60%, send long-term rates to new highs, and put tech stocks under significant selling pressure.
At a deeper level, the fundamental conflict facing tech stocks this year is the race between AI demand in the numerator and interest rates in the denominator. You do not know which will reach the finish line first. Today's CPI temporarily slowed the denominator by one step, but we will not know how strong AI demand really is until Nvidia submits its results on August 26. The outcome of this two-legged race cannot be determined by a single CPI report. $MU
