We told you early: This AI-picked stock is now up 70% in August ALONE

Jerome Powell and Jensen Huang are a dream double act for the market. But inflation is still a risk that could take down the stock market rally, and even the seemingly unstoppable Nvidia.

Federal Reserve Chair Powell has finally revealed he's open to rate cuts. The central bank chief's focus on risks to the labor market in his speech on Friday has the market convinced a reduction is coming in September, with some betting on a jumbo half-percentage point move.

That was music to investor's ears and sparked a stock rally. If Nvidia CEO Huang can deliver another knockout earnings report on Wednesday then lingering doubts about the artificial-intelligence trade could dissipate — there was a slight pullback last week — and supercharge the gains. Nvidia has a long record of beating even sky-high expectations.

But there are still a few discordant notes in the mix. Powell noted the effects of tariffs on consumer prices are "clearly visible" amid a constant string of levy announcements, with furniture imports being the latest targets. The core personal consumption expenditures price index — the Fed's favored inflation gauge — is expected to rise 2.9% year over year when July's data are released Friday, which could weaken enthusiasm for rate cuts.

Even Nvidia might not be immune to price increases. The chip maker is benefiting from a huge expansion of data centers housing its hardware but their power demands are driving up electricity prices, threatening to raise rates for consumers. A political backlash is one of the biggest threats to the AI boom.

It's worth watching the raft of retailer earnings this week for signs of consumer stress, after Walmart said last week tariffs were leading it to raise prices on some goods. Powell and Huang are a mighty team but even they will struggle to keep the show going if U.S. consumers start reining in spending.

• Adam Clark

*** The current bull market has favored the largest of large-cap stocks. Yet, plenty of smaller companies are growing nicely, beating estimates, and shining on Main Street, even if Wall Street has overlooked their success. Join Barron's senior managing editor Lauren Rublin and senior managing editor Ben Levisohn today at noon when they speak with Greg Tuorto, a portfolio manager at Goldman Sachs Asset Management and head of the firm's U.S. Small and SMID (small- and mid-cap) team, about the prospects for small-caps, and some of the best bargains in the sector. Sign up here.

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Jerome Powell Signals Potential for Cuts, Warns on Employment

Federal Reserve Chair Jerome Powell gave markets the signal they wanted on Friday: saying that the Fed could cut rates, and that with policy in restrictive territory, the shifting balance of risks "may warrant adjusting our policy stance." Beyond that, Powell was vague.

• Powell also said the labor market is in a "curious kind of balance," with demand and supply both fading at once. Job gains have slowed to an average 35,000 a month over the past three months, down from 168,000 a month during 2024.
• The Federal Open Market Committee is prepared to resume easing its monetary policy at its Sept. 17 meeting, likely with a rate cut of one-quarter of a percent. The CME FedWatch tool estimates that probability at 84%. But it's also amid the Trump administration's pressure campaign on Fed officials to cut.
• Downside employment risks are rising, and could include "sharply higher layoffs and unemployment," Powell said. A weak August jobs report on Sept. 5 could further justify a September rate cut and push the Fed into a deeper easing cycle. A stronger number gives Powell more cover to move slowly.
• Powell also expressed concern that President Donald Trump's tariff policy would continue to increase prices for months to come, meaning that even if the Fed cuts rates in September, that doesn't necessarily mean that another easing cycle is beginning.

What's Next: The Bureau of Economic Analysis will release the personal consumption expenditures price index for July on Friday. The consensus estimate is for the PCE price index to increase 0.2% from June, and for core PCE excluding food and energy prices to increase 0.3%, according to FactSet.

• Nicole Goodkind, Randall W. Forsyth, and Janet H. Cho

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Furniture Is the Administration's Next Tariffs Frontier

President Trump has threatened to impose tariffs on furniture imports. If they do take effect, furniture prices could increase, consumers could pull forward purchases to avoid tariffs, and retailers could pause or decelerate their expansion plans to focus on sourcing domestically, according to Jefferies analysts.

• Trump on Friday announced an investigation into tariffs on furniture imports, saying on social media that it would bring back the furniture business to North Carolina, South Carolina, Michigan, and other states.
• Furniture sellers already face inflation-weary shoppers. La-Z-Boy blamed a "challenged consumer" for disappointing earnings last week. It has plants in Tennessee, Missouri, and Arkansas, plus three in Mexico. Ethan Allen has seven U.S. plants, three in Mexico, and one in Honduras.
• Jefferies said some manufacturers could search for or merge with new domestic sourcing partners, expand their own manufacturing subsidiaries, or expedite their imports "to postpone the initial hit." Others with limited financial flexibility either because of high debt or overseas sourcing could become more strained.
• Williams-Sonoma, which reports earnings on Wednesday, imports goods from Asia, but also owns Sutter Street Manufacturing plants in North Carolina and Mississippi. RH also imports from Asia, but says it had moved a "meaningful amount" of goods previously made in China to a factory in North Carolina.

What's Next: Furniture manufacturers are already subject to country-specific tariffs on goods from China and Vietnam, the biggest exporters of furniture, and by tariffs on steel and aluminum. It's unclear if new tariffs would be stocked on top of those. Trump said the Commerce Department would finish its investigation within 50 days.

• Janet H. Cho and Anita Hamilton

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Nvidia Highlights This Week's Earnings. More Retailers Also On Deck.

Nvidia is the final Magnificent Seven stock to report earnings, and investors will be watching closely this Wednesday, both for what the company says about the quarter just ended and about its outlook for the near term. The report comes amid heightened Trump administration attention on the chips sector and sales to China.

• Nvidia has been the king of the artificial intelligence trade, feeding a seemingly insatiable demand for chips that power it. But the question could shift to whether Nvidia can supply enough chips to meet demand as the industry shifts to AI inference -- or making new observations or predictions from data.
• Nvidia halted production of its H20 chips intended for sale in China, The Information reported, after China discouraged its companies from using them over security concerns. Nvidia has an agreement to pay 15% of its chip sales in China to the U.S. for its right to export them.
• Analysts polled by FactSet are forecasting Nvidia's July-quarter sales jumped nearly 53% to $45.81 billion, while adjusted earnings rose to $1 a share from 68 cents a share in the same quarter of the prior fiscal year.
• Smaller and specialty retailers are also on deck for earnings this week amid worries over tariffs and their effects on prices and costs and consumer resilience. The week includes reports from Kohl's, Gap, Ulta Beauty, and deep discounter Dollar General.

What's Next: The week also features consumer confidence readings, starting with the Conference Board's August report on Tuesday, which is expected to be 97, a tick lower than July. Friday brings the University of Michigan's final August reading after its preliminary report fell to 58.6 from 61.7 in July.

• Liz Moyer and Connor Smith

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Electricity Prices Are Surging. The Fallout Could Hit Energy Companies.

Rising electricity prices are a growing problem for Americans and the Trump administration. The fallout could be a problem for a big range of energy providers, from renewable developers such as NextEra Energy, to power plant owners like Vistra, utilities like Duke Energy, and even natural gas producers like EQT.

• Residential electricity rates have risen about 30% since 2021 -- and 5.5% in the past year alone, twice as fast as overall inflation in the same span. The Energy Information Administration projects that residential rates will rise by roughly 6% in 2026.
• President Donald Trump campaigned on cutting electricity prices in half
  -- a goal that was never practically achievable and has only gotten more
  out of reach. Lately, Trump has been blaming rising prices on renewable energy like wind turbines and solar panels.
• Trump's claim doesn't stand up to evidence: States that depend on large amounts of renewables -- such as Texas and Iowa -- have relatively low electricity prices. And some states with low amounts of renewable resources, such as Connecticut, have very high electricity rates.
• Public Citizen's energy director Tyson Slocum says Trump's tariffs have raised costs for utilities that will be passed to consumers. In addition, the administration forced utilities to keep old plants running. Michigan's CMS Energy will pass to ratepayers the $29 million cost to keep a coal plant open.

By Joe Woelfel and Elsa Ohlen

Stock futures were falling Monday after equities surged in the previous session. The Dow Jones Industrial Average closed at a record high Friday for the first time this year as Federal Reserve Chair Jerome Powell signaled the central bank was moving closer to lowering interest rates.

These stocks were poised to make moves Monday:

Intel rose 1.9% in premarket trading. The company on Friday announced an agreement for the U.S. government to make an investment of $8.9 billion in Intel shares at $20.47 each, equaling a 9.9% stake in the chip maker. The stake, which makes the government the largest single investor in Intel, will be funded by the $5.7 billion in unpaid Chips Act grants and the $3.2 billion award from the Secure Enclave national security program. Intel said the government's investment will be passive, with no representation on its board or information rights. Intel shares closed Friday at $24.80, up 5.5%.

Wayfair fell 4.8%, Williams-Sonoma was down 5%, and RH declined 6.7% after President Donald Trump announced Friday the U.S. would be launching an investigation into tariffs on furniture imports. Wayfair, for example, imports a significant amount of its furniture from Asia. Ethan Allen Interiors, however, rose 5.5%. The company has seven plants in the U.S. and makes about 75% of its furniture in North America. La-Z-Boy, which operates manufacturing plants in Tennessee, Missouri, and Arkansas, rose 2%.

Bitcoin-buyer Strategy, formerly known as MicroStrategy, and cryptocurrency exchange Coinbase Global fell 3.9% and 2.5%, mirroring a drop in Bitcoin over the weekend.

Keurig Dr Pepper fell 2.2% after it said it would buy Amsterdam-listed coffee company JDE Peet's for $18 billion, or 31.85 euros per share ($37.30). It would be a prelude to separating into two separately listed public companies, the coffee machine maker and beverage company said Monday. JDE Peet's shares soared 17% in European trading hours.

Nvidia was up 0.4% in premarket trading. The leading maker of artificial-intelligence chips is scheduled to report quarterly earnings later this week. The stock closed Friday with a gain of 1.7% but ended the week lower, a second consecutive weekly loss. It's the longest losing streak since April 4, when Nvidia fell for three weeks in a row, according to Dow Jones Market Data. Nvidia shares have risen 33% this year.

Earnings reports are expected Monday from PDD Holdings, Heico, and Semtech.

In addition to Nvidia, earnings reports are expected later this week from Dell Technologies, Snowflake, Marvell Technology, CrowdStrike, HP Inc., Autodesk, Affirm, MongoDB, Okta, Box, PVH, Veeva Systems, Agilent Technologies, Williams-Sonoma, NetApp, Nutanix, Pure Storage, Li Auto, Ulta Beauty, Dick's Sporting Goods, and Best Buy.

Write to Joe Woelfel at joseph.woelfel@barrons.com

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