Markets Gain as Fed Hopes Lift Stocks, Clipping Dollar

Share indices rallied yesterday as Fed hopes lift investor optimism following revised US Q2 GDP growth of 3.3 percent and dovish messages from Federal Reserve officials. The tech-heavy Nasdaq in particular rose modestly, despite signs of weakness in Nvidia’s datacentre segment.

The Fed hopes lift sentiment drove markets toward broader cyclicals, evident in the Russell 2000 index outperforming, with nearly 7.3 percent gains this month versus lagging tech performance. The narrative hinged on cost-sensitive sectors standing to benefit from lower rates expected in the near future.

There was a particularly pronounced shift in equity from pricey tech to small caps. The Fed hopes lifting the outlook encouraged investors to take more risk, betting on monetary easing to provide longer-term support across sectors with greater domestic orientation.

The dollar, by contrast, stumbled pressured by rate-cut expectations and political interference at the Fed. The Fed hopes lift the theme underlined how aligned markets are with expectations of looser policy, even before Fed communications confirm that stance.

Looking ahead, momentum remains fragile. Markets will closely monitor the upcoming inflation and jobs data, as they will significantly impact the Fed's decision in September. If data disappoints, the Fed hopes lift narrative could falter quickly and equities could face renewed turbulence.

For now, though, markets are riding on an expectation that monetary policy is moving toward ease, and that has helped drive a notable rally across asset classes. The Fed hopes lift mentality is clearly in the driving seat for risk assets as August concludes.

Stay on top of any forex news by following us on X @ouinex