Warsh reopens the hike debate as Brent tops $90
The Fed chair says rates may still need to rise, and a US strike near Hormuz pushed Brent above $90 over the weekend. Both point the same way.
Two things happened since Thursday, and they push in the same direction: the Fed chair said out loud that rates may need to go up, and then a weekend strike near the Strait of Hormuz put Brent back above $90. An energy shock is the one thing that makes the inflation problem he described harder to solve.
What Warsh actually changed
At Jackson Hole on Friday, Fed Chair Kevin Warsh said inflation is still too high and the central bank may have work to do — acknowledging that recent readings have cooled somewhat, but that they “do not tell me that underlying trends have meaningfully improved.”
He did not signal an imminent hike. The bond market moved anyway. The two-year Treasury yield, the maturity that tracks Fed expectations most closely, went from 4.22% to 4.30% during Friday’s session and was quoted at 4.35% this morning. The ten-year is around 4.72%, up from 4.67%, and the thirty-year near 5.21%.
That is the shift worth internalising: for most of this year the argument was about when the Fed cuts. Since Friday afternoon the argument is about whether it hikes.
The weekend added an oil shock on top
US Central Command struck Iranian rocket launchers on Larak Island on Sunday, saying Revolutionary Guard units were preparing rockets fitted with sea mines for launch into the Strait of Hormuz. Iran struck US bases in Jordan and has vowed further retaliation.
Brent is around $90.61, up about 2.9%, with WTI near $85.66, up about 2.7%. US index futures are soft rather than panicked: S&P 500 futures down roughly 0.3%, Dow futures about 155 points lower.
Asia was orderly. The Nikkei 225 closed at 66,164.66 (-0.4%), the Kospi at 6,757.67 (-0.5%), the Hang Seng at 25,479.52 (-0.4%) and Australia’s ASX 200 at 9,076.80 (-0.2%). Shanghai bucked it at 3,967.94 (+0.4%). One practical note for the European session: London is shut for the UK summer bank holiday, so European liquidity today is thinner than a normal Monday and moves there may look larger than the conviction behind them.
Friday’s damage was much narrower than the headline
The indexes barely moved. The S&P 500 closed at 7,711.76, down 0.25%; the Dow lost 9.45 points to 53,559.99; the Nasdaq Composite fell 0.52% to 26,402.42. Underneath, 54 of the 100 large caps in the paid feed fell — close to an even split.
But the selling was not spread evenly, and this is where the “stocks fell on rate fears” summary misleads. The hit landed almost entirely on AI hardware and high-multiple software: Nvidia (NVDA) fell 4.6% to $217.55, Arm (ARM) 6.3%, Applied Materials (AMAT) 4.3%, Intel (INTC) 2.9%, AMD 2.3%, CrowdStrike (CRWD) 4.2% and Palo Alto Networks (PANW) 2.9%.
Meanwhile the largest index weights went up. Microsoft (MSFT) rose 1.7%, Alphabet (GOOGL) 1.7%, Amazon (AMZN) 4.0%, Meta (META) 1.2% and Salesforce (CRM) 1.6%. That is why the S&P lost only a quarter of a percent while the tech sector ETF (XLK) dropped 1.6%. Rate-sensitive small caps took the clearest hit: the Russell 2000 ETF (IWM) fell 1.4%, five times the S&P’s decline.
Two other moves fit the same rate story. Banks that earn on the spread rose — Bank of America (BAC) 1.9%, Wells Fargo (WFC) 2.0%, JPMorgan (JPM) 1.0% — while the capital-markets-heavy names did not, with Goldman Sachs (GS) down 0.7% and Morgan Stanley roughly flat. And gold was sold hard: the SPDR Gold ETF (GLD) fell 3.2%, its worst move on this list.
That last one is the genuine contradiction to sit with. Gold is the reflexive geopolitical hedge, and it got dumped on Friday — the same weekend an oil shock was building. Higher real rates beat the war premium in that tug-of-war. Energy, for its part, was already firm before the strike: the energy sector ETF (XLE) rose 0.6% and Chevron (CVX) 1.0%.
PayPal’s takeover premium evaporated
The single worst large cap on the day had nothing to do with the Fed. PayPal (PYPL) closed at $53.66, down 12.7% from Thursday’s $61.47, after reports that Stripe and Advent abandoned a takeover pursuit valued around $50 billion. The buyout group had reportedly offered $60.50 a share in mid-July; PayPal’s board rejected it as inadequate, citing regulatory and financing hurdles.
The stock now sits roughly 11% below the bid its board turned down. About 36 million shares traded, well over double its recent average. Elsewhere the earnings tape was kinder: Elastic (ESTC) jumped 19.4%, Gap 12.9% and Workday (WDAY) 5.5%.
The month-end number will flatter the setup
Today is the last trading day of August, and the monthly scorecard is good: the Dow is up about 2.1% for the month, on track for a fifth straight monthly advance, with the S&P 500 up roughly 3% and the Nasdaq about 4% — their first monthly gains since May.
So tomorrow’s headline will read as a solid month. It will describe a market whose central assumption changed in the final two sessions. Worth holding both facts at once rather than letting the monthly number stand in for the current setup.
What to watch today
- Chicago PMI for August, 9:45 AM ET. Above 50 is expansion, below is contraction.
- Dallas Fed manufacturing survey for August, 10:30 AM ET, plus August auto sales through the day.
- The two-year Treasury yield. It closed Friday at 4.30% and was quoted near 4.35% pre-market; it is the cleanest live read on how seriously the market takes Friday’s speech.
- Brent’s hold above $90, and whether further Hormuz headlines arrive during the US session.
- Gold. After Friday’s drop it is the clearest test of whether rates or geopolitics has the upper hand.
- A very light earnings day — SAIC before the open, nothing major after the close. The real tests come later this week: Dell and Palo Alto Networks on Tuesday, Broadcom, Snowflake and HPE on Wednesday.
- Month-end index rebalancing flows, which can distort the closing prints on the last session of a month.
- Friday’s August jobs report, the last before the September FOMC meeting. Consensus is around 58,000 jobs added and unemployment holding at 4.1%.
Not financial advice. iTrading Buddy summarizes publicly available market data and news; every figure above is sourced from the reporting available before the US open on the date shown. Verify anything you act on.