I. Market Overview: Risk Appetite Returns, Indexes Surge
On August 22, U.S. equities staged a broad rebound after Fed Chair Jerome Powell’s highly anticipated Jackson Hole speech. Treasury yields fell sharply, fueling risk-on sentiment across equities, bonds, and crypto. The Dow and Nasdaq both gained nearly 2%, while the S&P 500 advanced over 1%. Most stocks rallied, with only inverse ETFs down. Market breadth was overwhelmingly positive.
II. Key Event: Powell’s Dovish Signal
Tone: Powell struck a more dovish tone than expected, stressing that “the balance of risks is shifting,” acknowledging resilience in growth but also rising downside risks. He indicated that rate cuts may be needed “soon.”
Inflation Risks: He flagged tariffs as a renewed inflation driver (“stagflation scenario”), indirectly supporting cuts as a countermeasure.
Market Interpretation: Powell did not commit to a September cut or specify its magnitude, but markets interpreted the tone as dovish, leaving 50 bps cuts still possible. Futures had priced this in pre-market; risk sentiment firmed as soon as Powell began his remarks.
Political Context: Powell’s term is nearing its end. Trump has openly threatened to fire Fed Governor Cook if she refuses to resign, which she rejected, calling it “Twitter bullying.” This was seen as a warning to FOMC members not to openly resist White House pressure.
III. Economic & Policy Signals: Mixed Data, Stronger Easing Odds
Labor Market: Initial jobless claims rose to 235k (vs. 230k est.), the highest since February; continuing claims hit 1.97M, the highest since Jan 2021. Re-employment is slowing, confirming labor market cooling.
Growth Momentum: Composite PMI climbed to 55.4 (highest since Dec 2024); manufacturing PMI surged to 53.3 (best since May 2022, exiting contraction), while services PMI eased to 55.4 but stayed solidly expansionary.
Inflation Pressure: Input cost index reached a three-month high; goods/services price growth hit a three-year peak. Markets cut September rate-cut odds from 82.4% to 73.6%.
Trade & Fiscal Tailwinds: The U.S. and EU reached a trade framework deal; Canada scrapped retaliatory tariffs. Fitch affirmed the U.S. “AA+” rating, citing size, income, and reserve-currency status, projecting tariff revenue rising from $770B to $2.5T in 2024, narrowing the deficit from 7.7% to 6.9%.
IV. Equities & Sector Highlights: Tech Leads, Small Caps & Crypto Surge
Tech Leaders:
- Google (GOOGL): Won a $10B+ six-year Meta cloud deal; Apple to adopt Gemini for Siri upgrades. Shares hit record highs, market cap nearing $2.24T.
Intel (INTC): U.S. confirmed a 10% equity stake (non-voting). Stock +5.5%, though $40B needed for 14A chip rollout could pressure financing despite subsidies and SoftBank investment.
NVIDIA (NVDA): +1.72%, still under 10DMA. Next week’s earnings are pivotal. Reports say Beijing halted H20 production pending export license talks with Washington.
Small-Caps & Value Rotation:
Russell 2000 +3.86% as rate-cut bets fueled a rally in laggards. Funds rotated from mega-cap tech into small-cap/value beneficiaries.
Crypto & Speculative Plays:
- Crypto stocks surged: DFDV +21.7%, SBET +15.7%, BMNR +12%. Traders likened it to “lottery tickets”—big upside but high volatility.
- CIRCLE: Intraday +9.6% but reversed, closing weak with an inverted hammer (still below 5DMA). Rate cuts are structurally negative for its stablecoin business.
Other Movers:
- Opendoor: +39.2% on multiple catalysts.
DPST (3x bank bull ETF): +15%.
China ADRs: NIO +12%, Xpeng +8%, Alibaba +3%. Hang Seng Tech Index +3%, Tencent +2%.
V. Flows & Technicals: Institutional Re-Risking
Positioning: Institutions that had hedged and de-levered earlier reversed, adding back to tech exposure. The S&P 500 reclaimed short-term MAs; VIX collapsed.
Key Levels: 10Y Treasury yield broke back below 4.3%, easing pressure on growth stocks and small caps. If yields stay sub-4.3%, equity momentum likely continues; a rebound above 4.3% could revive seasonal weakness.
VI. Outlook & Strategy
Short-Term (Next Week): Watch NVIDIA earnings, 10Y yield trend, and trade deal progress. Powell left 50 bps cuts on the table, supporting further rally potential.
Medium-Term: Rising tariff revenue, narrowing deficit, labor cooling, and Fed cuts starting in Sep/Oct create a constructive backdrop for equities.
Strategy: Take partial profits in extended tech; hold cash for NVIDIA’s report. Add exposure to rate-sensitive sectors (real estate, financials). Select small caps and crypto plays for tactical trades, but size carefully. Avoid weak earnings names like CIRCLE.
Bottom Line: August 22’s surge reflected a trifecta of risk release, dovish Fed tone, and trade/fiscal tailwinds. While near-term volatility hinges on Powell’s follow-through, medium-term positioning windows are opening as earnings resilience and valuation reset converge.
