SOX Wiped Out; Circular Credit Hits the Brake
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Warsh Shuts the Door on a Cut First
Friday, August 28, the four averages pulled back. Russell and Nasdaq led. The Dow was almost unchanged, down 0.02% to 53,560. SPX fell 0.25% to 7,712. Nasdaq fell 0.52% to 26,402. IWM dropped 1.35% to 295.75. About 230 SPX names rose, 272 fell. Five of eleven sectors were up. Advancers versus decliners ran about 4 to 6. The averages did not break. The vote already leaned heavy.
What reversed the tape was the Philadelphia Semiconductor Index. All 30 constituents finished lower. SOX closed 11,470, down 3.47%, wiping out the prior three-day bounce in one session. SOXX closed 508.62, down 3.20%, low 506.82. NVDA fell from 227.98 to 217.55, down 4.57%, session low 216.82. MRVL dropped about another 10%. Thursday’s earnings bid lifted the group. Friday the same names went first.
Warsh at Jackson Hole was more hawkish than the market had prepared for. Twelve-month PCE is 3.7%. The six-month pace is 4.1%. Both sit above the 2% target. More than half of the components are still running above 3%. Summer prints beat expectations. The underlying trend did not improve in a material way. Price stability still sits in front of the labor market. Employment, on his reading, already meets full employment. The economy is resilient. AI capex is a growth engine. Credit spreads are easy, bank lending standards have loosened, and equities are firm, so financial conditions are hard to call restrictive. There is no urgency to ease. That is not a hike vote. It is shutting the door first. The sentence changes when stocks stop looking firm and credit actually tightens.
Money markets rewrote the book hawkish. Odds of a September hike rose from about 36% to about a coin flip. The two-year yield jumped to about 4.30, near the prior high. The 10-year moved toward its prior high as well. Bessent spent the week trying to pin the long end with buybacks. This stretch of Warsh ran the other way. Both sides are managing expectations. Watch what they do. Do not start from what they say.
The University of Michigan’s August final sentiment print was 51.7, above the 51 estimate, still down about 6% month over month. The current-conditions index fell from 54.8 to 51.9. Expectations fell from 55.4 to 51.5. One-year inflation expectations eased to 4%. Five-year stayed at 3.3%. Confidence is weak. Inflation expectations are sticky. The rate line and the chip line stacked on the same Friday.
A Brake on Circular Credit Is Not a Broken Loop
The Wall Street Journal reported that NVDA, less than two months after launching an AI compute-partner revenue-share plan in July, paused some of the deals. The structure offered credit support to AI cloud providers in exchange for a share of revenue. Two ways to get paid sit on top of each other: sell the chips, then take a cut of the rent, and finance the purchase as well. Put simply, fund the buyer, sell the chips, wait for the data center to lease out past a threshold, then share. The new program had only been running a few weeks before the degree of control angered some potential partners. Internally there was worry about antitrust review, and the contracts reached too far into how customers run the business. Some terms said capacity could only be rented to approved names, with a preference for spreading it across smaller customers rather than concentrating it in one large tenant. The counterparties are independent companies. They did not like the restriction. Funding a third party to buy your product, taking a cut of the rent, and then telling them who they may lease to does not sound like a partner. It sounds closer to a controlled subsidiary. That shape can invite a regulator. The report said the company pulled back from the arrangement last week and may recast it or fold it into other programs. The scale is about $36 billion.
The company neither confirmed nor denied. The official line: the new commercial model introduced in July is still in place and continues to evolve on strong demand. No denial. The tape treated the story as having weight. Semiconductors all fell. The first bill was charged to the narrative.
The shovel-seller, circular-credit, self-levered demand layer tapped the brake. The dollar amount is not large. It is a tell. Demand that was stretched by supplier credit is a little less certain, a little more uncertain. Is the circular loop broken? There is no evidence of that yet. The main circuit is still running. One report pushed a small program back. The funding chain did not snap. What would matter is a real report of data-center financing stress: capital voting with its feet, unwilling to keep lending. Partnerships fall apart and get rewritten all the time. This item does not prove the chain broke. What it does prove: there is a brake, growth may slow, and uncertainty is up. Keep running the model this way and regulation, including antitrust, is an extra variable.
The Spenders Bid; SOX Gave Back Three Days
The names that worked were the four large platforms plus AAPL. Modest volume, a clean haven shape. MSFT closed 513.53, up 1.68%, high 517.78. AAPL closed 319.70, up 1.63%. GOOGL closed 346.59, up 1.74%. AMZN rose about 3.7%. META closed 578.02, up 1.21%. Chips bled. The spenders got bought.
That logic was laid out after the second-quarter prints. The four large platforms are the buyers. 2026 is the free-cash-flow trough. The market’s fear was that the money would not come back. After the quarter it is clearer: the spend is producing a return. It is demand-driven, not a write-off. META is slower. The other three are progressing, which is not the same as success. If the industry keeps going, they can keep spending and keep earning. If the return worsens, they can cut capex, shift to defense, and repair the balance sheet off the existing franchise. They can attack or defend.
Semiconductors collect the checks. The high-growth path has two legs: the spenders keep adding, and credit finance stretches demand. If the spenders stop adding, growth decelerates. That is not yet a recession call. If the printing press slows, earnings slow with it. Friday’s report hit the second leg starting to limp. Inside the AI complex, the four large platforms now hold the initiative and look safer. Semiconductors have to be tracked daily. Thursday still had fiscal 2028 revenue growth around 70%. Friday the financing program was written as a pause. The tape changes fast.
SOXX is stuck in 486 to 532. That used to be medium support. With more trade, the shelf gets stronger. A break would raise the downside versus the last break. About a month of long chips sits above that range. Lose it and that cohort is underwater. A break is not the end of the structure. Lower structural supports still exist; a long-term bid still waits on those lines for a washout. Anyone long 486 to 532 with 550 to 580 as the map needs the stop written first. Software and the four large platforms have been the stronger groups. SOX is still one of the weaker sleeves on the tape.
Nvidia Held 215; 486 Is the Spring
NVDA is not expensive here. On a high-growth book, or on a conservative ordinary-growth book with a margin of safety, the low-210s to 220 are not rich. It sits at the top of the stack. If semiconductor risk rises, this is not the name that collapses first. It has time to adjust. The call is still hold. The largest book is MSFT. The second is NVDA. Support was marked to 205 to 215. Friday’s down bar did not lose it. The book is already full. No add. Anyone still light and still constructive on the stack can use those three levels.
The cash session is closed for the weekend. Near term, two items: whether SOXX holds 486 to 532, and whether data-center financing moves from a report to a fact. Warsh shut the door on a cut. Semiconductors gave back three days of bounce. The spenders are still bid. The loop did not break. The brake is on.