Last week, the bond market helped slow the momentum in AI-related stocks on Wall Street.

The S&P 500 fell 1.43% last week, the Nasdaq lost 2.05%, and the Dow declined 0.85%. Semiconductor stocks took more of the hit, with the Philadelphia Semiconductor Index down roughly 5%. Rising oil prices, persistent inflation concerns and a renewed rise in long-term Treasury yields pushed investors away from some of the market’s most rate-sensitive growth stocks.

This led to an unusually large gap between different sectors in the index.

Health Care gained 4.33%, while Information Technology fell 3.53% and Industrials lost 3.36%. Energy also gained 2.79%. This was not a simple move from growth into defensives. It was a market simultaneously pricing in higher inflation risk, higher financing costs, and several large company-specific healthcare catalysts.

Timing is important now, as the market is heading into one of the busiest periods for major events this summer.

Nvidia reports on Wednesday. July PCE inflation and revised second-quarter GDP arrive earlier that day. Fed Chair Kevin Warsh speaks at Jackson Hole on Friday.

Last week, the market seemed to judge outcomes before the key events even happened.

Health Care was the standout.

The Health Care Select Sector SPDR Fund rose 4.33%, marking its best week in months. However, it's not accurate to call this a broad shift into defensive stocks.

Moderna gained more than 140% following encouraging cancer vaccine trial data, while Merck rose more than 12%. Those moves helped pull the entire sector higher.

Technology stocks, on the other hand, performed poorly.

Information Technology fell 3.53%. Industrials declined 3.36%. Utilities, typically associated with defensive positioning, also fell by 3.48%.

The performance of utilities is worth noting.

If investors were only moving into defensive stocks, utilities would likely have done better. Instead, assets with longer time horizons in several sectors struggled as bond yields increased.

The gap between Health Care and Technology was almost eight percentage points in five trading sessions.

This was a strong and meaningful shift between sectors.

The 30-year Treasury yield climbed to its highest level since 2007 last week.

That matters because the current AI buildout is unusually capital-intensive. Nvidia and its partners are targeting more than $500 billion of third-party financing for AI infrastructure. Hyperscalers are also spending unprecedented sums on data centers, networking, power, cooling, and accelerators.

Higher yields do not eliminate the demand for AI infrastructure.

They do raise the hurdle rate.

There is a large difference between an AI project that yields attractive returns when the cost of capital is 4% and the same project when the cost of capital is materially higher.

AI is increasingly a financing story as well as a semiconductor story.

Nvidia reports fiscal Q2 2027 results on Wednesday, 26 August.

The company previously guided to $91.0 billion of revenue, plus or minus 2%, with a 75.0% non-GAAP gross margin, plus or minus 50 basis points. Nvidia also stated that its guidance assumes no Data Center compute revenue from China.

Results are due at approximately 4:20 p.m. ET, followed by the conference call at 5:00 p.m. ET.

The significance extends well beyond NVDA.

Strong demand would read across to HBM suppliers such as Micron and SK hynix, foundry capacity at TSMC, networking exposure at Broadcom and Marvell, and hyperscaler capital spending at Microsoft, Amazon and Alphabet.

Nvidia’s earnings report now feels more like a check-up on the entire industry than a typical company update.

The Bureau of Economic Analysis releases July Personal Income and Outlays, including PCE inflation, at 8:30 a.m. ET on Wednesday.

At exactly the same time, the BEA releases its second estimate of Q2 GDP and corporate profits.

June headline PCE inflation stood at 3.7% year over year, while core PCE was 3.3%. Economists recently estimated July headline PCE at around 3.6% year over year, with core prices rising roughly 0.2% to 0.3% month over month.

This makes Wednesday a unique day for the market.

Inflation and GDP set the discount rate in the morning.

Nvidia tests the growth narrative after the close.

The evidence does not support that conclusion.

Technology fell 3.53%, and semiconductors had a particularly weak week, but much of the pressure stemmed from rising long-term yields and inflation concerns rather than from evidence of collapsing AI demand.

Sometimes, stock prices and company fundamentals move in different directions.

Usually, they align again over time.

Possibly, but last week is a poor week from which to draw that conclusion.

Moderna’s extraordinary rally and Merck’s double-digit gain materially influenced the sector result. Strip out the largest company-specific catalysts, and the rotation looks less dramatic.

The 4.33% gain is important.

It’s also important to consider what caused this increase.

Kevin Warsh’s Friday speech matters because it is his first Jackson Hole appearance as Fed chair and because his communication style has intentionally moved away from traditional forward guidance.

However, a single speech cannot resolve the inflation debate when the data remains unclear.

A Reuters poll published last week found that most economists expected the Fed to leave its 3.50% to 3.75% policy rate unchanged through year-end, even as financial markets continued to price in some probability of further tightening.

That disagreement is precisely why bond yields matter so much.

The key takeaway is not just that technology stocks dropped while Health Care rose.

Instead, the market is starting to separate demand for AI from the cost of funding it.

These are two separate issues.

The semiconductor chain can continue to deliver extraordinary revenue growth even as valuations compress due to a rising discount rate. Hyperscalers can continue increasing capital expenditure while investors become more selective about the eventual returns on that spending.

This difference will likely become more important as AI shifts from testing to becoming a major part of corporate infrastructure.

Chips are still a key factor.

But the money used to fund these chips is becoming just as important.

This article gives the best overall summary of the week. It links rising Treasury yields, Nvidia earnings, AI infrastructure financing, and Jackson Hole into a single story rather than treating them separately. Read it here.

The bond market may be the bigger story this week. Warsh is heading to Jackson Hole as inflation remains above target and long-term borrowing costs rise. Read it here.

The main question is whether ongoing inflation will lead to real policy changes instead of just stronger words. The upcoming PCE report will help answer that. Read it here.

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This week contains three separate tests.

The first is inflation.

July PCE will determine whether recent evidence of easing price pressures is strong enough to offset continued energy and tariff-related risks.