The week that broke a three-week winning streak ended with the market finding its footing — and with a report suggesting the mechanical force behind much of August’s decline is nearly spent.
US stocks rose Friday after data showed business activity expanding at its fastest pace in more than four years, driven by strength in services. The Nasdaq 100 snapped a five-session losing streak ahead of next week’s Nvidia earnings. Yet the bounce couldn’t rescue the week: the index still fell roughly 2%, ending three consecutive weeks of gains.
The more consequential news came from CNBC, which reported that Citadel has liquidated more than 80% of the risk in the portfolio it acquired from Situational Awareness — the AI-focused hedge fund whose forced unwind marked the bottom of July’s semiconductor rout. If accurate, it suggests the selling pressure that has weighed on AI names for weeks has an end date, and it is close.
Index Performance
Rates, Dollar, Commodities
The Ghost of Situational Awareness
To understand why the Citadel report matters, it helps to recall what happened on July 30.
Situational Awareness, squeezed from both sides — long AI infrastructure names that were collapsing, short software names that were rallying — faced mounting margin calls and sold its entire portfolio to Citadel. The day the liquidation was known to be complete, the stocks SA had been dumping erupted: SK Hynix rose 17.5%, SanDisk 26%, Nebius 27%, CoreWeave 21%. It was one of the clearest demonstrations all year of how much price action can be driven by a single distressed seller rather than by fundamentals.
What has happened since is where it gets interesting. Morgan Stanley’s TMT momentum index fell 54% from June 22 to July 29, rebounded 35% from July 29 to August 17 — and has fallen 19% again from August 17 through this week. The pattern in that final leg looks uncomfortably familiar: AI beneficiaries under pressure, software names facing AI disruption rallying instead.
That symmetry has fueled speculation that another large fund has been unwinding positions similar to SA’s. Nobody outside those desks knows for certain, and the theory should be held loosely. But it offers a coherent explanation for something that has otherwise been hard to explain — why memory names with no company-specific bad news fell 7 to 9% on Tuesday, and why the hardware-versus-software inverse pairing has been so mechanically clean.
If Citadel has cleared 80% of the inherited risk and any parallel unwind is at a similar stage, the technical overhang should largely resolve within the coming week. That would leave the AI trade’s direction to be set by fundamentals again — starting with Nvidia on Wednesday.
Business Activity Hits a Four-Year High
The macro news was straightforwardly good. Flash purchasing managers’ data showed US business activity in August growing at its fastest rate in more than four years, powered by the services sector. Coming a day after Walmart described a consumer trading down under $4 gasoline, the divergence is worth sitting with: the corporate economy is accelerating while household spending decelerates.
Both can be true simultaneously, and for a while they have been. Business investment — particularly AI-related capital spending — has been carrying growth even as consumers economize. The question for the second half is how long an expansion can run on capex when the consumer, who represents roughly two-thirds of the economy, is pulling back. Friday’s data says that tension hasn’t broken anything yet.
Bitcoin’s Liquidity Trade
Bitcoin rose 22% on the week, and the catalyst was the Treasury’s buyback announcement — read by crypto markets as a liquidity expansion signal.
The logic is indirect but not unreasonable. If the Treasury retires long-dated bonds and funds the purchases through short-dated bill issuance, the net effect resembles adding liquidity to the financial system, and assets furthest out the risk curve typically respond first. Crypto-linked equities followed hard: Robinhood jumped nearly 14% and Coinbase gained 8%.
Whether that interpretation survives contact with Monday’s details is a separate matter — the Treasury has framed the program as a liquidity-support measure for a specific, malfunctioning segment of the bond market, not as monetary stimulus.
Bessent’s Monday Press Conference: What It’s Actually About
Treasury Secretary Scott Bessent will hold a press conference Monday at 2 p.m. ET at the Treasury Department, and it is worth being precise about what is on the agenda — because two very different stories converge on it.
The item Bessent himself committed to is Iran sanctions. “We are going to collapse this regime,” he said this week, referring to the new economic sanctions program Trump has ordered. “I’ll be holding a press conference on Monday to talk about exactly what we’re going to do.” Trump has separately warned of economic consequences for any country providing “any type of lifeline to Iran.”
But Reuters framed the event against both backdrops — the sanctions warning and the Treasury’s shift to a more aggressive pace of long-dated buybacks. Holding a briefing at the Treasury building days after an unscheduled intervention in the bond market makes buyback questions unavoidable, and Bessent has separately said a fiscal consolidation initiative would be announced “at the end of this week, beginning of next week” — a timeline that points at Monday as well. Investors looking for clarity on the trajectory of long-term yields have good reason to watch, even if sanctions are the headline.The buyback backdrop is substantial in its own right. This week the Treasury doubled its buyback ceiling — from $2 billion to at least $4 billion per operation, targeting the 10-to-20-year and 20-to-30-year sectors that have faced what CNBC described as a buyers’ strike since late June, with the change effective September 9 through November. Bessent said Thursday the ceiling could go higher, declining to name a figure.
His framing has been consistent and worth noting for its choice of words: this is a liquidity measure, not yield suppression. Liquidity in the 30-year sector, he said, is “very poor.” The goal is “to get people to focus on the fundamentals and not trade the headlines during a quiet period in a thin market” — the Treasury Secretary himself invoking thin summer liquidity as a reason current yields misrepresent conditions. He also cited the Iran conflict as a temporary distorting factor.
Not everyone is persuaded. RSM’s Joe Brusuelas offered a blunt dissent: “Bessent is a political actor. His interest is purely short term and is organized around the upcoming election and not a return to price stability.” The 30-year ended the week around 5.25%, off Tuesday’s 5.33% high but still above where it stood before the intervention.
The Week Ahead: Everything at Once
Next week is the most consequential stretch of the summer, and the events land in a specific order that shapes how each one gets read.
Monday: Iran sanctions. Bessent’s 2 p.m. ET press conference opens the week with the package he has promised will “collapse this regime.” The market has heard the warning but not the contents. The detail that matters most is whether Chinese entities appear on the list — designating refiners or ports turns an Iran story into a US-China story, with retaliation options that run straight through the semiconductor supply chain.
Tuesday: Intuit. Reporting after the close, and a cleaner test than it looks. Intuit sits in the exact category the market has been debating for months — enterprise software that AI could either supercharge or eventually displace. Guggenheim’s argument earlier this month was that AI-disruption fears in software are overblown. Intuit gets to make the case with numbers.
Wednesday: Salesforce and Nvidia, both after the close. This is the week’s fulcrum. The dominant pattern in recent sessions has been an inverse pairing — semiconductors selling off while software rallies, with capital rotating from the companies selling AI compute toward the companies buying it. On Wednesday evening, both sides of that trade report within an hour of each other.
Nvidia is the larger question. The index’s biggest weight reports into an unresolved argument over whether its $500 billion financing consortium represents healthy market-making or circular vendor financing with the risk merely syndicated. Bank of America expects a beat and raise. But after three sessions in which Anthropic’s run rate and OpenAI’s revenue set the direction for the entire chip complex, the more important content may be what management says about demand from the labs rather than the quarter itself.
Thursday: Jackson Hole opens. The symposium runs through the weekend, with the chair’s address customarily delivered Friday morning.
Friday: core PCE and Warsh, hours apart. July’s core PCE arrives at 8:30 a.m. ET, and it is almost certain to print hot for a reason unrelated to inflation. Portfolio management fees surged 6.5% in July — a figure that mechanically tracks the level of the stock market and feeds directly into core PCE under current methodology. The BEA is revising that treatment on September 30 precisely because it distorts the reading. Everyone sophisticated knows this. The risk is that algorithms trade the headline before the explanation arrives.
Then Warsh speaks. He has consistently refused to offer forward guidance, telling audiences he prefers to observe market reactions “direct and unfiltered” — but a symposium address is where that reticence is hardest to sustain. With three FOMC members having dissented in favor of a hike in July, and a distorted inflation print landing the same morning, any signal about the committee’s direction arrives on a market pricing roughly a 30% chance of a September move.
Taken together: a geopolitical shock Monday, the rotation trade adjudicated Wednesday night, and the summer’s most confusing inflation number arriving Friday morning with the Fed chair speaking hours later — all into a market whose liquidity has not yet returned.
Bottom Line
Friday offered two reasons for cautious optimism and one large caveat. Business activity at a four-year high says the expansion has momentum. The Citadel report says the forced selling that has punished AI names without cause is nearly finished. Together they suggest the past week’s 2% decline in the Nasdaq 100 was more about mechanics than about anything breaking.
The caveat is that mechanical selling ending doesn’t tell you what fundamentals will say when they resume control. Long-term yields remain elevated despite direct Treasury intervention. Oil is still bid on an unresolved Hormuz standoff. Walmart just described a consumer making trade-offs at the pump. And next week delivers four separate catalysts into a market whose liquidity has not yet returned from summer.
When the technical overhang lifts, the market gets its answer from the fundamentals. That answer starts arriving Monday afternoon.
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