Nvidia Could Not Stop the Rally, but Hot Inflation Might

Nvidia, whose moves often set the tone for the broader tech trade, has not been enough to knock the stock market off its climb. The bigger threat to the rally may be the one that hits every sector at once: inflation that stays hot enough to force the Federal Reserve's hand.

A Fed official has opened the door to a half-percentage-point rate increase, a more aggressive step than a standard quarter-point move. For stocks, the concern is mechanical. Higher interest rates lower the present value of earnings that companies expect to produce years from now, and that hurts richly priced growth stocks the most. Shares that have climbed on optimism about future profits are the most exposed if the central bank tightens faster than investors expect.

That makes the next inflation readings and any follow-up comments from Fed officials the key things to watch. If other policymakers echo the warning, traders may have to reprice how much they are willing to pay for expensive shares, regardless of how strong individual companies look.

Valuation is also back in focus because of Anthropic's IPO, which has been described as a blockbuster. A strong debut would reinforce investor appetite for artificial intelligence companies and could lift related stocks. But a rich initial valuation would raise a different question: how much of the enthusiasm for AI is already built into prices, and how much room is left if rates stay high.

For now, the rally has held up. The open question is whether it can survive a central bank that appears more willing to act against inflation than the market had assumed.