Gold drops 3% as Fed's Warsh comments lift rate hike bets

Wall Street's major indexes experienced a decline on August 28th, as investors grew cautious following Federal Reserve Chair Kevin Warsh's reaffirmation of the central bank's focus on curbing inflation, signaling a potential rate hike. Warsh, in his inaugural Jackson Hole speech, stated that the Federal Reserve would "have more work to do" if it couldn't demonstrate clear and swift progress towards its 2% inflation target.

Traders increased their expectations of a September rate hike after Warsh also affirmed that recent inflation data was inconclusive regarding a shift in the trend. The market is now divided between a rate hike and maintaining the status quo for September, similar to the sentiment before the mixed August inflation data. Mark Hackett, Nationwide's chief market strategist, noted that Warsh's speech reinforced hawkishness but in a more consistent manner compared to incremental adjustments.

Hackett explained that the market's modest reaction was due to Warsh's consistent commitment to the 2% inflation objective, rather than a reduction in expectations. Aditya Bhave, head of US economics research at Bank of America, emphasized that Warsh's speech underscored the responsibility of delivering a September rate hike, unless the August jobs and inflation data were notably weak.

Otherwise, Bhave believed Warsh would risk his credibility. Chip stocks were volatile, following the previous day's Nvidia rally driven by its bullish forecast for the AI-driven boom. The S&P 500 decreased by 19.23 points, or 0.25%, to 7,711.76, while the Nasdaq Composite fell by 138.93 points, or 0.52%, to 26,402.42. The Dow Jones Industrial Average shed 9.45 points, or 0.02%, to 53,559.99.

For the week, the S&P 500 gained 0.49%, the Nasdaq rose 0.85%, and the Dow climbed 0.53%. Market titan Nvidia saw a 4.6% drop, and Marvell Technology plummeted 10.3% due to uncertainty over revenue from its AI chip deal with Alphabet's Google, despite the company raising its 2027 revenue forecast. The majority of megacap stocks experienced gains.

Alphabet increased by 1.7%, making the S&P 500's communication services sector the largest contributor to the index. Apple also rose by 1.6%. Salesforce extended its previous session's gains, resulting in a 1.6% increase for the Dow. PayPal experienced a 12.7% decline following Bloomberg News' report that a consortium of investors, including Advent and Stripe, was abandoning their pursuit of the payments firm.

Gap's shares surged nearly 13% after the company named an industry veteran, Michael Francis, as the new CEO of Old Navy and revised its annual profit forecast upward. Ulta Beauty declined by 4.2% after its comparable sales growth slowed in the second quarter. The final University of Michigan consumer sentiment survey, released on the same day, came in at 51.7, matching economists' expectations.

On the NYSE, declining issues outnumbered advancers by a ratio of 1.77 to 1, with 167 new highs and 107 new lows. On the Nasdaq, 1,494 stocks surged and 3,272 fell, with a 2.19-to-1 ratio of declining issues to advancers. The S&P 500 recorded 5 new 52-week highs and 3 new lows, while the Nasdaq Composite achieved 51 new highs and 120 new lows.

Trading volume on US exchanges totaled 15.68 billion shares, slightly below the 15.8 billion average for the full session over the previous 20 trading days.