Published: August 28, 2026

 

U.S. stocks are navigating a tug-of-war between two powerful forces on Friday: continued enthusiasm over artificial intelligence spending and renewed concerns about inflation and interest rates.

The market entered the session after a strong technology-led rally on Thursday, when Nvidia’s latest outlook helped revive confidence in the AI trade. But investors quickly shifted their attention to Federal Reserve Chair Kevin Warsh’s first major speech at the Jackson Hole Economic Policy Symposium.

The result is a market that remains broadly resilient, but increasingly sensitive to interest rates, Treasury yields and whether the AI boom can continue producing growth at extraordinary levels.

 

Federal Reserve Chair Warsh Keeps Investors Focused on Inflation

The biggest macroeconomic event of the day is Federal Reserve Chair Kevin Warsh’s appearance at the Jackson Hole Economic Policy Symposium.

Warsh delivered a message that was more hawkish than some investors had hoped. He emphasized that the Fed’s 2% inflation target remains firm and argued that inflation is still running too high.

The Fed’s preferred PCE inflation measure is currently running at 3.7% year over year, according to Warsh, significantly above the central bank’s 2% objective. He also noted that the six-month measure was running at 4.1%. (Federal Reserve)

That creates an important problem for investors.

Markets have been trying to determine whether the Fed could eventually ease monetary policy as economic growth moderates. Warsh’s comments instead reinforced the possibility that policymakers could keep rates higher for longer, or potentially raise rates if inflation fails to move convincingly toward the Fed’s target.

Reuters reported that traders increased their expectations for a September rate hike following Warsh’s remarks, leaving the market essentially split between a hike and a hold. (Reuters)

For growth stocks, particularly highly valued technology companies, that matters because higher interest rates increase the discount rate applied to future earnings.

Warsh also indicated that he wants the Federal Reserve to reduce its reliance on traditional forward guidance. That could mean investors receive fewer explicit signals about where rates are headed and instead have to react more heavily to incoming economic data. (Federal Reserve)

Why it matters: The stock market’s next major catalyst may be inflation and employment data rather than another blockbuster earnings report. If inflation remains elevated, the valuation pressure on growth stocks could intensify.

Nvidia Revives the Artificial Intelligence Trade

The other dominant story this week is artificial intelligence, led by Nvidia ($NVDA).

Nvidia delivered a powerful reminder of just how much spending is still flowing into AI infrastructure. Its latest results and forward outlook helped push the Nasdaq Composite 1.57% higher on Thursday, while the S&P 500 gained 0.72%. (The Wall Street Journal)

Nvidia shares jumped sharply following the results, helping restore confidence in an AI trade that had recently faced questions about whether massive capital expenditures by technology companies could continue indefinitely.

The significance goes beyond Nvidia itself.

Nvidia’s position at the center of the AI infrastructure ecosystem means its results are increasingly treated as a proxy for demand across the broader technology sector. Strong demand for GPUs can support businesses involved in networking, cloud infrastructure, data centers and enterprise software.

Companies including Alphabet ($GOOGL), Meta Platforms ($META) and Salesforce ($CRM) have also been among the technology and communication-services stocks helping support the broader market. Reuters reported that Alphabet and Meta were higher Friday, while Salesforce extended its post-earnings gains. (Reuters)

However, Friday’s trading is showing that investors are not willing to blindly buy every AI-related stock.

Marvell’s Results Highlight the AI Trade’s New Problem

Marvell Technology ($MRVL) is providing an important counterpoint to Nvidia’s bullish outlook.

Marvell reported quarterly revenue of $2.74 billion and adjusted earnings of $0.94 per share, narrowly exceeding analyst expectations. Yet the stock dropped sharply because investors were looking for stronger evidence that AI-related demand would translate into immediate revenue growth. (Investopedia)

Reuters reported that Marvell shares fell 7.8% Friday, with investors particularly concerned about the timing of revenue from its AI chip agreement with Google’s parent company, Alphabet. (Reuters)

This is an important development for the AI investment narrative.

The question is no longer simply whether companies are spending money on artificial intelligence. Investors increasingly want to know how quickly that spending becomes revenue and profits for the companies supplying the infrastructure.

That distinction could produce much greater differentiation within the semiconductor industry.

Nvidia may continue benefiting from extraordinary demand for its leading AI accelerators, while companies further down the AI infrastructure chain could face more scrutiny regarding customer concentration, project timing and margins.

Intel ($INTC) was also among semiconductor stocks pulling back Friday after the previous day’s technology rally. (Investopedia)

The takeaway: The AI trade remains powerful, but investors are becoming more selective. Strong AI exposure alone may no longer be enough. Revenue visibility and profitability are becoming increasingly important.

PayPal Plunges as Takeover Hopes Fade

PayPal ($PYPL) is one of Friday’s biggest individual stock stories.

Shares plunged after reports that Advent International and Stripe had abandoned their pursuit of the payments company. The potential transaction had previously been reported at roughly $53 billion, making it one of the year’s most significant potential technology and financial-services deals. (Investopedia)

PayPal has been under pressure for an extended period as investors have questioned its growth trajectory, competitive position and leadership transition.

The possibility of an acquisition had provided another potential catalyst for the stock.

With that possibility now apparently fading, investors are once again being forced to evaluate PayPal primarily on its underlying business performance.

Reuters reported that PayPal shares were down 11.7% during Friday trading following the takeover news. (Reuters)

The episode also illustrates how sensitive individual stocks can become when investors begin pricing in potential mergers or acquisitions. When a transaction disappears, the stock can quickly revert to fundamentals.

Gap Surges on Old Navy Leadership Change

While PayPal was falling, Gap ($GAP) was moving sharply higher.

The retailer appointed Michael Francis as the new CEO of Old Navy, replacing Haio Barbeito. The leadership change came alongside quarterly results that included adjusted earnings of $0.52 per share and revenue of $3.65 billion. Although revenue was slightly below expectations, Gap raised its full-year profit outlook. (Investopedia)

Investors responded positively, sending Gap shares sharply higher.

Reuters reported that the stock gained 13.7% Friday after the company announced the Old Navy leadership change and increased its annual profit forecast. (Reuters)

The reaction demonstrates that investors are willing to reward companies that can show improving profitability even when revenue growth is not spectacular.

For the retail sector, that could become increasingly important as consumers continue to face elevated prices and borrowing costs.

Treasury Yields Remain a Critical Market Signal

The stock market’s reaction to the Fed is also being reflected in the bond market.

The 10-year Treasury yield was around 4.69% Friday morning, according to Investopedia, up from 4.67% at Thursday’s close. (Investopedia)

Higher Treasury yields can create headwinds for equities because bonds become more attractive relative to stocks while the present value of future corporate earnings falls.

This is particularly relevant for technology companies whose valuations depend heavily on expectations for earnings many years into the future.

The relationship between stocks and bonds will therefore be one of the most important themes to monitor heading into September.

If Treasury yields continue climbing because investors expect the Fed to maintain restrictive monetary policy, highly valued growth stocks could face additional volatility.

If yields stabilize or decline, the environment could become considerably more supportive for technology and other rate-sensitive sectors.

What Investors Should Watch Next

Friday’s market action suggests that investors are entering September with three major questions.

First, can inflation move back toward 2%?

Warsh has made clear that the Federal Reserve is not prepared to declare victory. With PCE inflation still significantly above target, future inflation reports could have an outsized impact on rate expectations. (Federal Reserve)

Second, can AI spending continue at its current pace?

Nvidia has delivered another strong argument for the AI growth story, but Marvell’s reaction demonstrates that investors are becoming more demanding. The market wants evidence that enormous AI infrastructure investments will generate durable revenue and earnings.

Third, can the broader economy support corporate profits despite higher rates?

The market remains remarkably strong. The Dow, S&P 500 and Nasdaq were all higher Friday morning, while the VIX volatility index briefly reached its lowest level since December. (Reuters)

That combination suggests investors are not currently pricing in a major economic downturn.

But the next phase of the rally may require more than strong megacap technology earnings. Investors will need evidence that inflation is cooling, corporate profits remain resilient and interest rates are not moving materially higher.

The Bottom Line for the Stock Market Today

The central theme for August 28 is a battle between AI optimism and interest-rate reality.

Nvidia has demonstrated that demand for artificial intelligence infrastructure remains extraordinarily strong. That supports the broader technology sector and has helped the major indexes recover from recent weakness.

But Federal Reserve Chair Kevin Warsh has made equally clear that inflation remains the Fed’s primary concern. With PCE inflation at 3.7%, the central bank still has significant work to do before it can declare price stability restored. (Federal Reserve)

That leaves investors facing a more complicated market environment.

The AI boom can continue pushing corporate earnings higher, but higher interest rates can simultaneously put pressure on valuations. The companies that perform best in this environment may be those capable of delivering real earnings growth rather than simply promising future AI opportunities.

For investors, the most important signals heading into September may therefore come from three places: inflation data, Treasury yields and the ability of AI spending to translate into measurable corporate revenue and profits.

Sources

• Reuters: Wall Street inches up as Fed Chair Warsh reaffirms inflation fight
• Federal Reserve: Kevin Warsh’s 2026 Jackson Hole keynote remarks
• Investopedia: 5 Things to Know Before the Stock Market Opens on August 28, 2026
• The Wall Street Journal: U.S. Stocks Rise After Rosy Nvidia View
• Kansas City Fed: 2026 Jackson Hole Economic Policy Symposium