Dow Jones Hits New High Awaiting Fed's Rate Cut Clues

On the evening of August 22, U.S. stocks continued to rise in early trading on Friday, with the Dow Jones Industrial Average hitting a new intraday high. The market is awaiting the speech by Federal Reserve Chairman, who is expected to provide clues about the future path of monetary policy at the Jackson Hole symposium.

The Dow Jones Industrial Average rose 660.09 points, or 1.47%, to 45,445.59. The Nasdaq Composite Index increased by 295.84 points, or 1.40%, to 21,396.15. The S&P 500 Index gained 79.44 points, or 1.25%, to 6,449.61. During early trading on Friday, the Dow Jones Industrial Average reached a new intraday high of 45,486.76 points.

Recent expectations of interest rate cuts have boosted sectors that have not participated in this year's rally. Investors are selling off large-cap tech stocks and shifting towards small-cap and value stocks. Investors are closely monitoring the speech by the Federal Reserve Chairman at the annual economic symposium in Jackson Hole, where he may provide hints about the interest rate path.

This summer's financial market event is seen as a crucial moment for the future direction of the Federal Reserve's monetary policy. The market is highly anticipating the Chairman to confirm the prospect of a rate cut in September. According to the CME FedWatch tool, traders bet on a 73.5% chance of a 25 basis point rate cut at the September 16-17 meeting, with at least one more rate cut expected for the year.

Analysts point out that if the Chairman signals a more hawkish stance, it could dampen market sentiment. Jim Caron of Morgan Stanley Investment Management stated, "I believe the Federal Reserve and the Chairman will try to explain and convey the reasons for starting the rate cut process in September, which should support the market." However, analysts warn that if the Chairman refuses to make a pre-commitment or hints at overly optimistic market expectations, it could lead to a significant re-pricing of bond yields and risk assets.

David Mericle, an economist at Goldman Sachs, expects the Chairman not to explicitly signal a rate cut in September but believes the speech should indicate support for a rate cut. If the Chairman strongly advocates for a rate cut, the majority of FOMC members who are skeptical about a September rate cut may support the action. However, he believes a more reasonable approach would be to convince them with more data as the meeting approaches.

Ed Yardeni, president of Yardeni Research, estimates a 40% chance of a rate cut in September. He notes that the Federal Reserve still needs to assess two inflation reports and one employment data before the September meeting.

HSBC believes that under the impact of tariffs, AI will help U.S. companies reduce costs and increase efficiency, potentially supporting the S&P 500 to rise to 7,000 points by the end of the year. HSBC notes that while tariffs are a negative factor for U.S. corporate profit margins, they could also act as a catalyst for companies to quickly adopt AI to cut costs. If AI adoption continues to accelerate, it could drive a meaningful re-rating of the market and support the S&P 500 Index reaching 7,000 points by the end of the year in a bullish scenario.

Regarding U.S. tariff inflation, UBS believes that tariff costs have already started to be passed on. UBS states that the current effective tariff rate in the U.S. is over 18% and is expected to stabilize at around 15% by mid-2026. Although the impact is slow to materialize, it is expected that tariffs will ultimately reduce U.S. GDP growth by about 1 percentage point and increase the U.S. Consumer Price Index (CPI) by about 1 percentage point compared to a scenario without tariffs.