Wall Street moved slightly lower on Friday as investors reacted to a hawkish speech from Federal Reserve Chair Kevin Warsh at the Jackson Hole conference.
Losses were partly limited by gains in consumer discretionary and communication services stocks, while most members of the Magnificent Seven also advanced.
At 15:00 ET, the S&P 500 was down 0.3% at 7,704.98. The Dow Jones Industrial Average was nearly flat at 53,546.27, while the Nasdaq Composite fell 0.7% to 26,368.61.
Despite Friday’s weakness, U.S. stocks remained on track for a weekly gain.
Warsh Keeps Focus on Persistent Inflation
Warsh used his Jackson Hole keynote to discuss artificial intelligence, economic conditions and the Federal Reserve’s communication strategy.
However, inflation remained the main focus.
The Fed chair said underlying inflation trends had not “meaningfully improved” and stressed that restoring price stability should remain the central bank’s priority.
His comments came at a difficult time for policymakers.
Inflation remains elevated, oil prices are still high due to the prolonged U.S.-Iran conflict, and recent labor market data have shown signs of weakness.
Fed Rate Hike Expectations Rise
Warsh said the labor market currently appears consistent with full employment, but he expressed greater concern about price stability.
The Federal Reserve has a long-term inflation target of 2%.
Its preferred inflation gauge, the Personal Consumption Expenditures price index, rose 3.7% year over year in July. Core PCE inflation, which excludes food and energy, increased 3.3%.
These readings remain well above the Fed’s target.
Markets interpreted Warsh’s remarks as hawkish.
According to the CME FedWatch tool, traders raised the probability of a 25-basis-point Fed rate hike in September to more than 59%, compared with about 35% a day earlier.
Treasury Yields Climb After Warsh Speech
U.S. Treasury yields also moved higher following Warsh’s comments.
The benchmark 10-year Treasury yield rose 5.2 basis points to 4.724%, while the more rate-sensitive 2-year yield climbed 11.8 basis points to 4.350%.
Bond markets have remained volatile in recent weeks.
Investors continue to assess persistent inflation, heavy corporate debt issuance and concerns surrounding the growing U.S. national debt.
Recent efforts by the Treasury Department to support longer-dated bonds have so far provided limited relief.
Nvidia Drives Weekly Wall Street Gains
Away from Federal Reserve policy, Wall Street remained on track for its fourth weekly advance in five.
Much of the weekly strength came from Nvidia, which surged almost 9% after reporting strong quarterly results and an upbeat outlook.
The rally added more than $440 billion to the company’s market value.
Nvidia reported quarterly revenue of $92.22 billion, representing growth of 106% from a year earlier.
The company also projected current-quarter revenue of approximately $108 billion, plus or minus 2%.
AI Stocks Recover After Nvidia Earnings
Nvidia’s results gave fresh momentum to the artificial intelligence trade.
AI-related stocks had experienced significant volatility earlier in the year as investors questioned whether massive spending on AI infrastructure would generate sufficient returns.
Although Nvidia fell around 4.7% on Friday, several other Magnificent Seven stocks advanced.
Meta Platforms, Apple, Microsoft, Alphabet and Amazon gained between roughly 0.7% and 3.5%.
Their strength helped limit broader Wall Street losses.
Oil Prices Head for Weekly Decline
Oil prices were also on track for a sharp weekly fall as investors monitored developments in the U.S.-Iran conflict.
Friday marked six months since the United States and Israel launched military strikes against Iran.
The conflict has since become increasingly focused on control of the Strait of Hormuz, one of the world’s most important energy shipping routes.
Traffic through the waterway remains far below historical levels.
Before the conflict, roughly one-fifth of global oil and gas flows passed through the strait.
U.S. Increases Economic Pressure on Iran
Washington has increasingly shifted from direct military action toward economic pressure.
Treasury Secretary Scott Bessent announced a new sanctions campaign targeting Iran and warned other countries against maintaining economic ties with Tehran.
Iran strongly criticized the measures and argued that other countries should not comply with the sanctions.
Meanwhile, reports of possible progress in negotiations have helped pressure oil prices lower this week.
Strait of Hormuz Talks Remain in Focus
Several reports have pointed to possible diplomatic progress between the United States and Iran.
Some reports suggested that a new ceasefire framework could be under discussion.
Others indicated that Iran and Oman were moving closer to an agreement on a temporary commercial shipping route through the Strait of Hormuz.
Pakistan has also reportedly highlighted progress in regional negotiations.
However, uncertainty remains high after reports that Washington was unwilling to return to the terms of an earlier agreement reached with Iran.
For Wall Street, the combination of Fed policy, inflation, Treasury yields, AI stocks and Middle East tensions is likely to remain a major driver of market sentiment.
