Fed Hints at Cuts, Markets Surge – Can the Rally Last?

Over the past two weeks, markets have been buoyed by signals from the U.S. Federal Reserve that rate cuts may be closer than expected. At the Jackson Hole symposium, Fed Chair Jerome Powell acknowledged that a softening labour market could justify monetary easing as early as September. His comments triggered a sharp rally across equities, with the Dow Jones climbing to fresh record highs, while the S&P 500 and Nasdaq also advanced strongly. Small-cap stocks outperformed, suggesting broader participation in the rally beyond just the large-cap tech leaders.

Asian markets tracked Wall Street higher, with the Hang Seng, Shanghai Composite, and Taiwan’s Taiex all moving firmly into positive territory. Gains in Taiwan were led by the strength of TSMC and the wider semiconductor sector, reinforcing optimism in the global AI supply chain. Japan’s Nikkei and South Korea’s Kospi also rose modestly, while India’s indices reached new milestones: the Nifty 50 traded above 24,900 and the Sensex climbed past 81,500, supported by resilient foreign inflows and rupee stability.

Despite the positive momentum, investors are beginning to question the sustainability of the AI-driven tech rally. After months of dominance from mega-cap technology names, valuations look stretched, and some rotation into defensive sectors has already begun. With earnings season ongoing, the spotlight is now firmly on Nvidia’s results due this Wednesday, which are expected to be a key sentiment driver for both the technology sector and broader equity markets.

Looking ahead, the combination of softer U.S. inflation data and a potential September rate cut provides a constructive backdrop for risk assets. However, history reminds us that September is often a seasonally weaker month, and lingering concerns over tariffs and geopolitics remain headwinds to watch.

Summary

• Fed hints at cuts: Powell signals a September move is possible, sparking a rally.

• Global equities climb: U.S., Asia, and India all saw strong gains over the fortnight.

• Tech momentum questioned: AI-led valuations look stretched, rotation underway.

• Key watchpoint: Nvidia’s earnings mid-week could set the tone for markets into September.

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