Powell's Strongest Rate Cut Signal Spurs Market Rally; Nasdaq Soars 1.4%

On the evening of the 23rd Beijing time, U.S. stocks continued to rise during Friday's early trading session, with the Nasdaq up 1.4%. Federal Reserve Chairman Jerome Powell signaled that the time for policy adjustment had arrived, hinting that a rate cut was imminent. Analysts mentioned that this was the strongest signal for a rate cut from Powell so far.

The Dow Jones Industrial Average rose by 298.73 points, or 0.73%, to 41,011.51 points; the Nasdaq increased by 246.73 points, or 1.40%, to 17,866.09 points; and the S&P 500 Index went up by 53.86 points, or 0.97%, to 5,624.50 points.

On Wednesday morning at 10 a.m. Eastern Time, Federal Reserve Chairman Jerome Powell addressed the annual global central bank meeting held in Jackson Hole, Wyoming.

Powell stated: "The time for policy adjustment has arrived. Confidence in inflation approaching 2% has strengthened. We neither seek nor welcome further cooling in the labor market."

He added: "We will do everything in our power to support a strong labor market while making further progress towards price stability; the policy rate level provides ample room to respond to risks, including further unfavorable softness in the labor market."

Powell noted that the timing and pace of rate cuts would depend on data, outlook, and risk balance. The upward risk of inflation has decreased, while the downside risk of employment has increased. Unemployment rose not due to increased layoffs, but due to increased labor supply and slower hiring.

Powell believed that the labor market is unlikely to become a source of inflation soon; the cooling of the labor market is "evident" and no longer overheated.

Market analysts highlighted that Powell had given the strongest signal yet for a rate cut, indicating that the Fed intends to take action to prevent further weakening of the U.S. labor market.

Previously, it was expected that he would hint at a near-term rate cut without providing too many details about the magnitude and frequency.

According to CME Group's FedWatch tool, the market bets on a 73.5% probability of a 25-basis point rate cut by the Fed in September, a 26.5% probability of a 50-basis point rate cut, with cumulative probabilities for November rate cuts being 54.2% for 50 basis points, 38.9% for 75 basis points, and 7.0% for 100 basis points.

Minutes from the Fed's July monetary policy meeting, published on Wednesday, showed that "several" Fed officials believed that the timing was ripe for a rate cut in July, while a "vast majority" of participants favored a rate cut in September.

On Thursday, U.S. Treasury yields surged, putting pressure on the stock market, with tech stocks leading the decline. The S&P 500 Index fell by 0.9% and the tech-heavy Nasdaq Composite dropped by 1.7%, its biggest single-day decline since August 5. The blue-chip Dow Jones Index closed down by 177 points.

Ned Davis Research recently published a report suggesting that U.S. stocks displayed a bullish technical indicator, predicting double-digit gains for the S&P 500 Index next year.

On Friday, economic data showed that U.S. new home sales in July were annualized at 739,000 units, exceeding the expected 625,000 units. The previous value was revised to 668,000 units from 617,000. The annualized monthly rate of new home sales in July was 10.6%, with a forecast of 1.00%, revised from -0.6% to 0.3% for the previous figure.

In focus stocks, Nvidia will report its second-quarter results after the market closes on August 28. Wedbush commented that this could be the "most important" event in the tech industry in years. Analyst Dan Ives wrote in a report to investors: "As the Fed and Powell start communicating about rate cuts, this week the market and global economic direction are focused on Jackson Hole, but we believe that the most important week for the stock market this year and potentially for years to come will be next week, with AI pioneer Jensen Huang and Nvidia set to release earnings."

As for the actual earnings report, Ives added that Nvidia could once again "lower the microphone performance," as he believes the company is "the only game in town" in AI and GPUs.

Currently, analysts generally expect Nvidia's revenue for the next quarter to be $28.67 billion, with earnings per share of $0.64.