Bubble, No Bubble: Stocks Are So Back After Powell Cranks It Up

Stretched valuations, talks of froth, and overall market fatigue. That’s what investors were saying for stocks (especially those AI plays) up until Powell brought up the vibe that rekindled the animal spirits. Let’s talk about that.

📈 Powell Drops the Mic

Markets started last week exhausted. The S&P 500 SPX was wobbling, the Nasdaq IXIC was shedding like your beautiful ragdoll cat, and traders were probably looking up vacation getaways instead of technical patterns.

But then on Friday we all came together to hear one man speak. It was the same neutral, laid back tone, but this one time something was different. As if… a bolder man was on the stage, unafraid to crank it up. Or was it more of an elderly man finally giving the kids what they wanted?

In his speech at Jackson Hole, Fed boss Jay Powell acknowledged what markets had been hoping to hear: “The risk of rising prices has diminished.” Translation? The Fed finally sees inflation cooling down. And the labor market might need some help, too.

That was all it took. Risk appetite flipped, sending equities way higher into Friday’s close (even though Monday's futures dipped a bit).

The S&P 500 SPX booked a solid 1.5% pop, the Dow Jones DJI surged 1.9% to a fresh all-time high, and the Nasdaq IXIC managed to erase much of its weekly losses after a strong 2% increase. Powell didn’t cut rates yet — he just gave markets a few reasons to believe cuts are coming.

🚧 The Job Market Pivot

Before Powell spoke, traders were bracing for maybe one rate cut this year, if any. Sticky inflation had the Fed cornered. But Powell flipped the narrative, shifting attention to the labor market instead.

The US unemployment rate has climbed nearly a full percentage point over the past year, and job growth is slowing fast, averaging just 35,000 new positions per month over the past three months. Even worse, revisions stripped 258,000 jobs from May and June’s data.

For traders, this was the lightbulb moment: a weakening labor market gives Powell the green light to pivot.

🔥 Inflation Still Isn’t Dead

Here’s the awkward part: while Powell’s tone eased market fears, the inflation problem hasn’t magically vanished. Core CPI is still running 3% year-over-year, well above the Fed’s 2% target, even as the headline CPI USCPI stood at 2.7% for July.

Meanwhile, wholesale prices USPPI — often a precursor to consumer price trends — surged 0.9% last month, marking their fastest monthly jump in three years.

Powell is walking a tightrope: move too quickly on cuts, and inflation could flare up again; wait too long, and the job market weakens further. The stakes are high, and the balance fragile.

🎈 Bubble Talk, Again

Every time stocks rip higher, the “bubble” debate resurfaces. And honestly? It’s hard to ignore it this time. AI stocks are priced like they’ve already rewired how the world works, and the Nasdaq’s relentless rally looks almost too clean.

But here’s a reality check. We’ve never had a big market crisis for the past 16 years. March 2020? Recovered in a few months. April’s mini-crash? Erased in weeks.

Markets seem determined to brush off every scare and buy the dip. Powell’s pivot only reinforced that attitude: traders don’t care about stretched valuations if the Fed is hinting at cheaper money ahead.

🤖 Nvidia’s Market, Nvidia’s Rules

That’s how we move forward to what’s next. Nvidia NVDA drops earnings on August 27 (Earnings Calendar for reference). And because this is Nvidia’s market and we all live in it, expectations are sky-high.

Analysts are projecting just under $46 billion in revenue and $1 per share in earnings. But the real focus? Forward guidance.

If Nvidia signals a blockbuster Q3 — something in the ballpark of $54 billion in sales — it could keep fueling the AI mania and push the Nasdaq and the S&P 500 to fresh highs. But if the numbers disappoint, this entire rally could wobble.

Considering Nvidia has added more than $3 trillion in market cap since 2023, it’s no exaggeration to say the stock’s earnings could set the tone for everything else.

🦁 Animal Spirits Are Back

Powell’s softer tone and the Nvidia hype machine have combined to reawaken animal spirits across Wall Street. That makes for a good example on how you can shift from doom-posting about stagflation to refreshing the ATH charts in less than 48 hours.

The S&P and the Dow are at or near record highs, the Nasdaq is eyeing another breakout. What’s not to like? The rally isn’t bulletproof.

It’s being driven as much by vibes as fundamentals right now. Rate cuts haven’t happened yet, the labor market is fragile, and inflation hasn’t fully cooled. The market appears to be trading on optimism — and optimism can turn fast.

🏁 The Bottom Line

Jerome Powell didn’t announce a rate cut, but he did something almost better: he opened the door a bit wider. By acknowledging softer labor data and reduced inflation risks, he revived traders’ appetite and gave permission to believe the rally has legs.

But this story has two big hinges: Nvidia has to deliver, and inflation has to behave. One earnings miss or a hot CPI print, and this animal spirit revival could fade as quickly as it started.

Off to you: Are you long and excited about the outlook? Or you’re in the bear camp and looking for your chance to short this market? Share your views in the comments!