Monday Takeaways: Jackson Hole’s Short Covering Frenzy Hides Inflation Reality

Shah Gilani|August 25, 2025

Friday’s Jackson Hole rally surprised a lot of people…

But here’s what really happened: It wasn’t Powell’s dovish speech that sent markets soaring…

It was panicked short covering.

Markets had been falling all week, with heavy bets that Powell would stay hawkish. When he surprised everyone with rate cut signals, those shorts had to cover fast.

The problem? The fundamentals don’t support September cuts…

• Walmart and Target report tariff impacts hitting them “every week”
• Inflation appears to be rising, not falling
• The labor market shows no signs of serious weakness
• Retailers are preparing to pass higher costs to consumers.

Meanwhile, this week brings the ultimate test – Nvidia earnings on Wednesday.

With the chip giant representing 8% of S&P 500 weight and 40% of its sales going to just five mega-cap customers, one disappointing number could unravel everything.

I’ll break down why Friday’s surge was more about covering bets than economic reality, what Nvidia must deliver to keep this rally alive, and why the “heavy data week” ahead could turn Powell’s dovish dream into a market nightmare.

Click on the image below to see why the kettle is about to boil.

Transcript

Hey, everybody. Shah Gilani here with your Monday Takeaways.

It’s nearing 8:30 a.m., and futures are down a little bit this morning.

The first takeaway from last week was that people probably didn’t realize markets were down going into Friday, going into Chairman Powell’s keynote speech at Jackson Hole. The S&P was down about 1.5%. The Nasdaq was down a good bit more than that.

History says leading into an FOMC meeting, anything can happen. But going into Jackson Hole, markets tend to rise. This time they fell. We got what most people perceive as a bullish statement in terms of dovishness from Chairman Powell, signaling that it’s maybe time to ease. And so markets just went to town on Friday.

I personally didn’t see it that way.

I thought what he said was indeed dovish, but I don’t understand the metrics behind it because inflation seems to be rising. We’re getting messages from the likes of Walmart and Target and others that tariffs are impacting prices. They’re trying to keep them down for now, but every week, they’re seeing an impact. And eventually, they’re likely to pass those through to consumers.

I just don’t see the economy slowing enough to warrant rate cuts, and I don’t see the labor market falling out of bed enough to warrant cuts. But that was the message then. That’s what the market took it as. Again, a little surprising to me, but there had also been – because the markets had been falling, and this is the real takeaway, people – because markets had been falling, there had been bets that maybe he would be somewhat hawkish. And so there was a lot of shorting going on, and that shorting was part and parcel to hedging against all the profits that people have on the table.

Those shorts had to get covered when the bullish, dovish statement was perceived as “we’re going to see a September cut.”

So that’s what happened last week. An interesting week to say the least. It would have been completely different if we had gotten really nothing out of the Fed chairman in his keynote speech. If it had been just “we’re data dependent,” the markets likely would have continued lower, and we would have closed lower on Friday.

But now we’re knocking on new highs again, and that’s a good thing. Again, here we are Monday morning, 8:30 a.m. Futures are a little down this morning. It’s going to be a heavy week.

Now we’re not all back to work. Yes, kids are going back to school, and it’s really the last week of summer going into the Labor Day weekend. And everything’s just supposed to pick up starting in September because everybody’s back on their trading desks and everything is in full swing.

But this week, data is in full swing, people. It’s a heavy data week. On Monday, we have new home sales. Tuesday, durable goods.

Wednesday, the big deal. Nvidia reports after the close. Nvidia is just about 8% of the S&P in terms of cap weightings. It’s going to move the market.

Forty percent of Nvidia’s sales go to Meta, Microsoft, Amazon, Alphabet, and one more.

Yeah. So it’s going to be a big deal. If their earnings are soft or guidance is soft – because they haven’t been selling chips to China and they told one of their suppliers to cut back on some production – this market could see a turnaround. But if Nvidia reports and guides well into the future, then we’re off to see another leg higher. So busy, busy week so far, and that’s up to Wednesday, which I think is the key piece, Nvidia’s earnings, but it doesn’t end there.

Thursday, we have jobless claims, and we also have Dell’s earnings, which I think are going to be something of importance too.

And then Friday, the big day for economic metrics, we have PCE.

We have personal income. We have spending, and we have the University of Michigan consumer sentiment numbers.

Also, for those of you who want some Chinese stocks like I do, we have BYD earnings and Alibaba earnings on Friday also. So, a lot of stuff going on. Last but not least – I forgot to say Thursday – we have GDP revisions.

Be careful out there. It’s going to be an interesting week.

The kettle may end up boiling.

Be safe out there.