Fed Holds Steady, but Dovish Signal Ignites Market Sentiment
The Fed announced its latest rate decision at 2 PM ET on July 29, keeping the federal funds rate target range at 5.25%-5.50% as expected, marking the 11th consecutive hold since September 2025. However, what truly sparked market enthusiasm was a subtle shift in the post-meeting statement. The statement removed the previous wording that inflation "remains elevated," replacing it with "inflation has made further progress toward the 2% target but still needs more data." More importantly, the dot plot showed that 13 of 18 policymakers expect rate cuts within 2026, with a median forecast of two 25-bps cuts, and the first cut most likely at the September meeting. This dovish stance was immediately interpreted as the start of the countdown to rate cuts.
US Stock Indices Surge; Nasdaq Hits New Record High
After the rate decision, the three major US stock indices quickly rose. The Dow Jones Industrial Average closed up 0.9% at 38,420 points; the S&P 500 gained 1.3% to 5,280; the tech-heavy Nasdaq Composite surged 2.1% to 18,390, a record closing high. The Philadelphia Semiconductor Index also jumped 2.8%, approaching last year's historic peak. The VIX fear gauge fell 13% to 14.2, indicating a sharp rebound in risk appetite.
Magnificent Seven All Close Higher; Capital Flows Back to Growth Stocks
Under rate cut expectations, interest-rate-sensitive tech heavyweights once again led the rally. The "Magnificent Seven" all closed higher: Apple (AAPL) rose 2.3%, regaining a $3.5 trillion market cap; Microsoft (MSFT) gained 1.8%, boosted by Azure cloud growth; Alphabet (GOOGL) rose 2.1%; Amazon (AMZN) gained 1.9%; Nvidia (NVDA) surged 4.5% to $980, nearing the $1,000 mark; Tesla (TSLA) rose 3.0%; Meta (META) gained 1.5%. Fund flow data showed tech ETFs (e.g., QQQ) attracted about $2.8 billion in net inflows overnight, the largest single-day amount in three months, indicating institutional capital shifting from defensive sectors (utilities, healthcare) to growth tech stocks.
Treasury Yields Plunge; Bank Stocks Under Pressure
Heightened rate cut expectations directly pushed U.S. Treasury yields lower. The 2-year yield dropped 12 basis points to 4.15%, and the 10-year yield fell 8 bps to 4.02%, narrowing the spread. The yield curve inversion eased, alleviating recession fears. However, bank stocks suffered due to deteriorating net interest margin outlook. JPMorgan (JPM) fell 0.8%, Bank of America (BAC) dropped 1.1%, and Citigroup (C) lost 0.9%. Funds clearly rotated out of financials into tech growth stocks.
Chinese Stocks Follow Suit; New Energy Vehicles Shine
Overnight, Chinese stocks also benefited from the positive sentiment, with the China Golden Dragon Index rising 1.6%. The three new energy vehicle leaders performed well: NIO (NIO) surged 5.2%, XPeng (XPEV) gained 4.8%, and Li Auto (LI) rose 3.5%. Among e-commerce platforms, PDD (PDD) gained 2.1%, and Alibaba (BABA) rose 1.3%. The offshore yuan appreciated slightly by 0.2% to 7.15 against the dollar, providing additional support for Chinese stocks.
Fed Chair Powell Press Conference: Door Open for September Cut
In the subsequent press conference, Fed Chair Jerome Powell emphasized that inflation has cooled significantly from its peak, but the labor market remains resilient, so the committee is in no rush to cut rates but does not want to fall behind the curve. He stated, "If the data continue to show inflation coming down, we will seriously discuss rate cuts at the September meeting." This further strengthened market expectations. The CME FedWatch tool showed the probability of a 25 bps cut in September surged from 60% before the meeting to 85%, while the chance of a 50 bps cut rose from 5% to 15%.
Industry Views and Outlook
Analysts generally believe that unless the August nonfarm payrolls and CPI data unexpectedly spike, a Fed rate cut in September is almost a done deal. This is a medium-term positive for high-valuation tech stocks, as lower rates reduce capital costs and boost present value of future cash flows. However, some experts warn that the market has already priced in much of the good news, and short-term volatility of "buy the rumor, sell the fact" may occur. Looking ahead, investors will focus on July nonfarm payrolls (Aug 7) and July CPI (Aug 12) to confirm the rate cut path. It is recommended that investors moderately participate in the trend of tech growth stocks while watching for potential pressure on high-leverage sectors from changes in Treasury yields.
