The S&P 500 is heading into one of the most important two-day stretches of the summer.

U.S. stocks rebounded on August 25 as technology shares recovered from the previous session's selloff, but investors are now waiting for two events that could determine whether the rally continues: Nvidia's quarterly earnings and the latest U.S. inflation data.

The S&P 500 rose around 0.2% during Tuesday trading, while the Nasdaq gained more strongly as semiconductor and technology stocks moved higher.

The rebound comes after renewed pressure from rising Treasury yields, geopolitical uncertainty and concerns that the artificial intelligence trade may be losing momentum.

But the market's next move may depend less on Tuesday's recovery and more on what happens over the next 48 hours.

Nvidia reports earnings after the market closes on Wednesday, August 26.

The Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures price index, is also due to provide another update on whether price pressures are easing or remaining stubbornly above target.

Together, those events will test the two pillars supporting much of the S&P 500 rally: strong corporate earnings and expectations that monetary policy will eventually become more supportive.

S&P 500 Rebounds as Technology Stocks Recover

Technology shares led Tuesday's recovery.

Nvidia, Meta, Intel, Micron, Western Digital and AMD all traded higher, helping the broader market recover some of Monday's losses.

AMD gained around 5% after receiving an upgrade from Raymond James.

The move helped restore confidence after semiconductor stocks had come under pressure during the previous session.

On Monday, weakness in Nvidia, Micron and Broadcom dragged the technology sector lower and helped push both the S&P 500 and Nasdaq into negative territory.

That volatility reflects a larger question facing investors.

Technology and artificial intelligence have been major drivers of U.S. equity returns, but valuations remain high and expectations are demanding.

The market therefore needs continuing evidence that AI spending is translating into revenue and earnings growth.

Nvidia is about to provide one of the most important tests of that thesis.

Nvidia Earnings Could Move $280 Billion in Market Value

Options markets are pricing an approximately 5.4% move in Nvidia shares following the company's earnings report.

At Nvidia's current size, that would represent roughly $280 billion in market capitalization moving in either direction.

That is an extraordinary amount of value tied to a single earnings release.

Yet the implied move is actually smaller than investors have seen around previous Nvidia results.

Before the company's May earnings report, options priced a move of around 6.5%.

Across Nvidia's previous 12 quarterly reports, the average post-earnings move has been approximately 7.4%.

The lower implied volatility could suggest that investors now see Nvidia's business as somewhat more predictable.

It could also indicate that the market is becoming less willing to price enormous upside surprises into every earnings report.

Either way, the scale remains large enough to affect the broader S&P 500.

Why Nvidia Matters So Much to the S&P 500

Nvidia is no longer simply another semiconductor company.

Its valuation and influence mean that movements in the stock can materially affect major U.S. indexes.

The company has become one of the central beneficiaries of the global artificial intelligence investment cycle.

Cloud providers, technology companies and AI developers continue spending enormous amounts on data centers and computing infrastructure.

Nvidia's chips remain at the center of much of that spending.

As a result, investors increasingly use Nvidia earnings as a proxy for the health of the wider AI trade.

Strong results can support semiconductor stocks, cloud infrastructure companies, data-center suppliers and other technology businesses.

Weak guidance could have the opposite effect.

That creates unusually high stakes for the S&P 500.

Nvidia Revenue Could Approach $92 Billion

Wall Street expects another enormous quarter.

Analysts surveyed ahead of the report expect Nvidia's second-quarter revenue to reach roughly $92 billion, almost double the level from the comparable period a year earlier.

Data-center revenue is again expected to provide the majority of growth.

But the headline revenue number may not be the most important part of the report.

Investors will be watching the outlook.

Markets want evidence that major technology companies will continue spending heavily on AI infrastructure.

They will also focus on margins, demand for Nvidia's existing systems and the rollout of the company's next-generation Vera Rubin architecture.

The company is expected to begin shipping Rubin products later this year.

If management indicates that demand remains strong into the next generation of hardware, concerns about an AI spending slowdown could ease.

AI Financing Is Becoming a Bigger Question

There is another issue investors are watching increasingly closely.

Nvidia has become involved in financing parts of the AI ecosystem that purchase its products.

The company has participated in partnerships designed to support hundreds of billions of dollars in AI infrastructure investment.

Supporters argue that these arrangements accelerate the construction of computing capacity required by rapidly growing AI companies.

Critics worry that financing customers can blur the line between genuine end-market demand and demand supported indirectly by suppliers.

That does not mean Nvidia's revenue is artificial.

But investors are beginning to scrutinize the economics of AI infrastructure more closely.

The first phase of the AI rally was largely driven by the assumption that spending would continue rising rapidly.

The next phase may require stronger evidence that the enormous capital expenditure produces sustainable returns.

The Semiconductor Rally Has Already Been Huge

Nvidia itself is up around 12% in 2026.

That roughly matches the broader S&P 500.

But the semiconductor sector has performed dramatically better.

The Philadelphia Semiconductor Index has gained approximately 61% this year.

That divergence is important.

It shows that the AI trade has broadened beyond Nvidia into other chipmakers and infrastructure suppliers.

But it also raises the risk of disappointment.

After a 60% sector rally, investors are paying significantly higher prices for future earnings.

A disappointing Nvidia report could therefore trigger selling across companies that may not even have direct exposure to Nvidia's own quarterly results.

This is why the earnings release matters for the S&P 500 as a whole rather than only for NVDA shareholders.

Inflation Is the Second Major Test

Nvidia is only half of the equation.

The other major market catalyst is inflation.

Investors are waiting for the latest Personal Consumption Expenditures price data.

The PCE index is particularly important because it is the inflation measure the Federal Reserve follows most closely when assessing progress toward its 2% target.

Core PCE, which excludes volatile food and energy prices, has remained above that target for an extended period.

Persistent inflation makes it more difficult for the Fed to ease monetary policy.

That matters directly for stocks.

Higher interest rates increase borrowing costs and raise the discount rate investors use when valuing future corporate earnings.

Growth companies with profits expected far into the future can be particularly sensitive.

Technology stocks therefore face a double exposure this week.

They need strong earnings.

They also need an inflation environment that does not force monetary policy to become materially tighter.

Treasury Yields Remain a Risk for Stocks

Bond yields have already demonstrated how quickly they can pressure equity valuations.

Earlier this month, long-term U.S. Treasury yields climbed sharply.

The 30-year yield reached levels not seen since 2007, while the 10-year Treasury yield reached its highest level since early 2025.

Higher yields contributed to weakness in technology and semiconductor shares.

More recently, yields have eased.

On August 25, the 10-year Treasury yield fell toward 4.65%, while the 30-year yield declined to around 5.18%.

Part of the move followed Treasury Secretary Scott Bessent's announcement that the government would expand buybacks of longer-duration Treasury securities.

Falling yields provided some relief for equities.

But that relief could disappear quickly if inflation data comes in hotter than expected.

The Fed Is Still a Major S&P 500 Variable

Interest-rate expectations remain unusually uncertain.

Markets have spent much of the year trying to determine whether the next significant Federal Reserve move will eventually be toward easier policy or whether persistent inflation will require rates to remain higher.

That debate has direct consequences for the S&P 500.

If inflation continues easing while economic growth remains resilient, equities could benefit from a relatively favorable combination: strong corporate profits without additional monetary tightening.

If inflation remains elevated, the Fed has less flexibility.

And if economic growth weakens while inflation stays high, the market faces a much more difficult scenario.

That combination would pressure both earnings expectations and equity valuations.

S&P 500 Earnings Remain a Major Support

One reason the market has remained resilient is corporate earnings.

The second-quarter reporting season has generally been strong.

Most S&P 500 companies have already reported, leaving Nvidia as one of the final major releases.

Profit growth has remained robust across much of the index.

That has helped justify higher stock prices despite elevated Treasury yields and continuing geopolitical uncertainty.

UBS Global Wealth Management recently raised its year-end S&P 500 target to 8,100.

The target implies roughly 6% upside from the index level near 7,641 at the time of the forecast.

UBS cited resilient economic growth, supportive monetary expectations and continuing AI adoption.

The bank also increased its projected S&P 500 earnings per share for 2026 to $350 from $335.

For 2027, it raised its EPS forecast to $400 from $375.

Those revisions demonstrate why earnings remain so important.

Higher valuations become easier to defend if corporate profits rise quickly enough.

UBS Sees the S&P 500 Above 8,000

UBS is not alone in expecting the S&P 500 to finish 2026 above 8,000.

Several Wall Street firms have moved targets higher as earnings estimates improve.

The bullish argument rests on three broad assumptions.

First, the U.S. economy avoids a severe slowdown.

Second, corporate earnings continue expanding.

Third, AI investment remains a major source of productivity and profit growth.

If all three remain intact, the S&P 500 could continue climbing even with bond yields significantly above levels investors became accustomed to during the previous decade.

But Nvidia and PCE inflation will test two of those assumptions almost immediately.

Consumer Weakness Is Starting to Appear

There are also signs that not every part of the economy is performing equally well.

Walmart recently reported its slowest quarterly comparable-sales growth in six years.

The retailer warned that consumers are facing pressure from high gasoline prices.

Its shares fell sharply even though the company increased its annual sales and profit forecasts.

Other consumer-facing companies have also produced uneven results.

On Tuesday, Dick's Sporting Goods fell about 28% after reducing its annual outlook.

Nike declined nearly 3%.

These moves highlight an important divergence within the S&P 500.

Technology earnings remain exceptionally strong.

Parts of the consumer economy look much less comfortable.

If household spending weakens materially, that could eventually affect broader corporate profits.

Geopolitics Adds Another Layer of Risk

Markets are also navigating several geopolitical uncertainties.

U.S. pressure on Iran continues to influence oil prices and bond markets.

Trade tensions between the United States and Canada have also increased after Washington threatened higher tariffs on Canadian auto imports.

So far, investors have largely treated these issues as secondary to earnings and monetary policy.

But that could change.

A significant rise in oil prices would create additional inflation pressure.

Higher inflation could push Treasury yields upward and make the Fed more cautious.

That would turn a geopolitical shock into a direct stock-market problem.

For the S&P 500, energy markets therefore remain an important indirect variable.

September Seasonality Is Approaching

Timing also matters.

September has historically been one of the weaker months for U.S. equities.

Seasonality is never a reliable trading signal by itself.

But it can become relevant when markets enter the period after a strong rally and with valuations already elevated.

The S&P 500 has gained substantially in 2026.

The semiconductor sector has risen even more.

Investors therefore enter September with considerable unrealized gains.

A disappointing earnings report or unexpectedly strong inflation number could provide a reason for some investors to reduce risk.

Conversely, strong Nvidia guidance combined with softer inflation could remove two major near-term concerns.

What Would Be Bullish for the S&P 500?

The most constructive scenario would combine several developments.

Nvidia would need to deliver strong revenue and guidance.

Management would ideally confirm that AI infrastructure spending remains resilient into the Rubin product cycle.

PCE inflation would need to show enough moderation to prevent another increase in Fed tightening expectations.

Treasury yields would remain stable or continue declining.

And broader corporate earnings would remain strong.

That combination could allow investors to focus again on the possibility of the S&P 500 reaching 8,000 or higher.

What Could Trigger Another Selloff?

The bearish scenario is almost the mirror image.

A weak Nvidia outlook could raise questions about whether AI spending is reaching a peak.

Higher-than-expected inflation could push Treasury yields upward.

That would place simultaneous pressure on the two forces supporting high technology valuations: earnings growth and discount rates.

A renewed rise in oil prices could amplify those inflation concerns.

The biggest risk is therefore not necessarily one disappointing headline.

It is several negative catalysts appearing at the same time.

The S&P 500 Is Facing a Real Test of Its Rally

Tuesday's rebound shows that investors are still willing to buy technology weakness.

But the market has not yet answered the more important questions.

Can AI earnings continue growing fast enough to support current valuations?

And can inflation cool sufficiently to keep the Federal Reserve from becoming a larger obstacle?

Nvidia and PCE inflation could provide important evidence on both.

The options market expects Nvidia alone to potentially move around $280 billion in shareholder value after its earnings report.

At the same time, inflation data could change expectations across the entire bond market.

That makes the coming sessions unusually important for the S&P 500.

The index does not need perfect results from either catalyst to continue higher.

But after a strong year for U.S. equities and an extraordinary rally in semiconductor stocks, the margin for disappointment is smaller.

For now, the S&P 500 remains supported by earnings growth and the AI investment cycle.

The next test is whether those forces remain powerful enough to overcome persistent inflation, high Treasury yields and increasingly demanding valuations.

Source: Crypto Daily