Stock Market Struggles Again: Technical Caution and Opportunity Ahead of Powell's Friday Speech

The S&P 500 and Nasdaq 100 briefly touched new highs last week, but the momentum quickly faded as investors cooled from robust Q2 earnings while macro uncertainty capped further gains. Individual stocks showed diverging performances, with the Mag 7 showing signs of fatigue and retail-driven small caps facing a sharp sell-off. Tariff-related inflation concerns weighing on the rate-cut outlook added to the cautious mood, leaving sentiment more restrained than fundamentals alone would suggest. Here’s what investors should recognize before the next move, and the key catalyst this week that could determine where markets head next.

Bull Run Starts to Slow, Mag 7 Mixed, Retail Frenzy Fades

The broader market is showing signs of fatigue. The S&P 500 and Nasdaq 100’s 3-day moving average has already turned lower, a short-term warning signal. If the decline breaks the 7-day average, a deeper reversal could unfold. For now, the 7- and 10-day averages remain upward, but the conflict between short- and medium-term signals creates tension. A fully bearish setup would emerge only if all three averages roll over together. It’s too early to call, but caution is warranted.

The Mag 7’s performance remains critical for index momentum.

Meanwhile, the market has started to sell down small- and mid-cap winners that were previously lifted by retail enthusiasm.

Overall, even with solid Q2 earnings, the market tone has turned cautious. Investors are taking profits in early winners and sentiment-driven stocks that lack clear evidence of sustainable growth. Still, this does not mean the rally is over; the pivot is shifting back to macro drivers.

Inflation Remains the Key Rate-Cut Hurdle, Focus on Powell’s Friday Speech

The shift in sentiment can be traced to last week’s inflation data. While CPI once again came in softer than expected, PPI surged at its fastest monthly pace since June 2022, suggesting upward pressure could flow into CPI over time. This is exactly the kind of risk that Fed Chair Jerome Powell is likely watching.

Powell’s Jackson Hole speech on Friday could provide guidance on both the inflation outlook and the rate path. After weaker nonfarm payrolls and a softer CPI, the Fed appears positioned for a September cut. However, Powell may also stress the risk of inflation re-accelerating, keeping his tone cautious and potentially rattling markets. At the July meeting, two Fed governors, Bowman and Waller, supported a cut, but the final vote was 9-2 to hold steady. Despite political noise, including Trump’s nomination of Stephen Miran as a new Fed governor, Powell retains decisive influence over the policy path.

Markets currently price in an 83% probability of a September rate cut. Investors will be parsing Powell’s words closely, looking for signals on whether weaker labor data and subdued CPI outweigh the risk of hotter PPI. He may endorse a September cut but signal that it does not mark the start of an aggressive easing cycle, or he may simply defer judgment until more data arrives. Either way, his tone will carry outsized weight.

Buy the Dip if Powell Triggers Volatility

If stocks tumble after Powell’s speech, it could present an entry opportunity. The market’s current struggle reflects profit-taking and technical fatigue, not a breakdown in fundamentals. Investors need a new catalyst to re-engage, and the AI boom revealed in Q2 earnings remains in its early monetization phase. Despite tariff uncertainty and elevated rates, the underlying innovation cycle in AI is robust, positioning tech giants for stronger fundamentals ahead. In that context, macro noise may just be a distraction.

Whether Powell sparks a rally or a sell-off, his speech is likely to set up the next big move. Investors who shift focus back to fundamentals will continue to chase clear winners in the AI race. The risks are real, but so are the rewards.