Markets inched higher again Wednesday, with the S&P 500 closing at another record. The tone was calm, but the anticipation was anything but: Nvidia earnings dropped after the close, with the company under enormous pressure as its market weight continues to climb. Nine of eleven sectors rose on the day, led by Energy and Technology, while crypto sold off and gold ticked higher. Treasury yields were mixed, with shorter maturities easing and longer bonds flat to higher, leaving the curve at its steepest since 2021. With GDP due today and PCE inflation tomorrow, the macro calendar is about to get heavier.

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Nvidia is carrying a burden few companies have ever shouldered. It now makes up 8% of the S&P 500, 10% of the QQQ, and 16% of the XLK. Its results have effectively become a referendum on the AI trade itself, with options volumes spiking to three-month highs. Analysts are split: bulls see another blowout as AI spending forecasts climb toward $400 billion, while skeptics warn that expectations may finally be ahead of reality.

More broadly, investors continue to pour into equities. Buybacks have already topped $1 trillion this year at the fastest pace on record, while hedge funds are reportedly mirroring retail investors’ bullish stance rather than fading it. That unusual alignment heightens the stakes: if earnings or macro data disappoint, there could be fewer buyers left to cushion a drawdown.

Small-caps have quietly outpaced large-caps in August, with the Russell 2000 up more than 6% versus a 2% gain for the S&P 500. With valuations at multi-decade discounts and domestic revenue shielding them somewhat from tariff crossfire, investors are starting to ask: is this long-awaited catch-up finally here?"

Tariffs are back in the headlines. Mexico is proposing higher levies on Chinese imports in its 2026 budget, aligning more closely with Washington’s tougher stance. Japan’s top trade negotiator abruptly canceled a U.S. trip, underscoring friction at a delicate moment for supply chains. And reports surfaced that a “secret Xi letter” played a role in reviving ties with India after Trump’s tariff barrage, highlighting Beijing’s quiet maneuvers to stabilize relationships in Asia.

India itself remains in the geopolitical spotlight, caught between deepening ties with Russia and U.S. pressure over oil purchases. Analysts warn that Modi may find his balancing act harder to sustain as global fault lines sharpen.

This dynamic leaves oil markets caught between geopolitical pressure and shifting demand. U.S. tariffs on Indian imports, implemented in response to India's continued purchases of discounted Russian oil, have yet to significantly dent dynamics at the pump, with Indian refiners signaling plans to keep tapping Russia for crude despite the penalties. Keep an eye on oil prices to indicate who will blink first.

The White House’s push to exert greater influence over the Federal Reserve continues to reverberate. Reports suggest Trump’s team is exploring ways to shape the appointments of regional Fed presidents, who have historically operated outside direct political control. That prospect has fueled fresh worries about the erosion of Fed independence, with Treasury Secretary Bessent reiterating his call for a sweeping review of the institution.

The Treasury curve continues to steepen, with long-dated yields drifting higher even as the short end rallies. That move is less about growth optimism and more about fiscal worries and inflation risk being pushed out to the back end. Financials, especially banks and insurers, often benefit when spreads between short- and long-term rates widen, improving net interest margins. At the same time, gold tends to catch support when steepening reflects concern over fiscal dominance and deficit financing, as investors look for insurance against long-term policy slippage. The message from bonds right now is less about rate cuts in September and more about how investors will be compensated for holding duration over the next decade.

Elsewhere in Washington, leadership churn continues. CDC Director Susan Monarez was removed this week, while the FDA faces new political pressure over COVID vaccine approvals. The administration’s reach into public health, combined with its campaign against the Fed, underscores how governance battles are now intersecting directly with markets.

Markets are drifting higher but remain hostage to two narratives: AI and tech increasingly dictating direction, and the White House’s growing imprint on the Fed. Nvidia appears to have done just enough to let the rally continue, but concentration risk could come into play at any time. Add in tariffs flaring abroad and GDP/PCE data stateside, and investors face a volatile mix of hype, politics, and policy into the end of August.