Changpeng Wan
– U.S. Treasury Secretary Bessent (贝森特) advocates for 50-basis-point September rate cut citing revised weak employment data
– Markets price in near-certain Fed rate cut (99.9% probability) after soft inflation reports
– Chinese stocks surge 2.08% with Futu, Bilibili leading gains amid sector rotation
– Trump administration reveals 11 potential candidates to replace Fed Chair Jerome Powell (鲍威尔)
– Small-cap stocks outperform as investors anticipate reduced borrowing costs
The U.S. stock market erupted in celebration as Federal Reserve rate cut expectations reached near certainty following dovish signals from Washington. Treasury Secretary Bessent (贝森特) stunned markets by advocating for a 50-basis-point reduction in September – double the conventional cut size – citing newly revised employment data showing near-stagnant job growth. This unexpected development propelled the S&P 500 to consecutive record highs while triggering a 2.08% surge in Chinese stocks listed on U.S. exchanges. The Fed rate cut speculation has fundamentally reshaped market dynamics, with investors rotating out of mega-cap technology stocks into small-caps and Chinese equities that stand to benefit most from cheaper capital. Meanwhile, political pressure intensified as the Trump administration revealed it’s evaluating 11 candidates to replace Fed Chair Jerome Powell (鲍威尔), whose term expires in 2026. This perfect storm of monetary policy shifts and political maneuvering creates both opportunities and risks for global investors navigating the new landscape.
Market Roars as Fed Rate Cut Expectations Soar
Investors received the clearest signal yet that a Fed rate cut is imminent when Treasury Secretary Bessent (贝森特) explicitly endorsed a 50-basis-point reduction. This extraordinary intervention came after revised Labor Department data revealed May-July job growth nearly stalled at 11,000 monthly positions – a sharp downward revision from the initially reported 272,000 average. The Fed rate cut probability soared to 99.9% according to CME FedWatch Tool, triggering broad market euphoria.
The Data Behind the Shift
The critical revision of employment numbers fundamentally altered the Fed’s policy calculus:
– Initial May-June reports: 272,000 average monthly job growth
– Revised data: Mere 11,000 monthly gains
– Q2 GDP growth slowed to 1.5% from 3.4% in Q1
Bessent (贝森特) argued current rates are “150-175 basis points too high,” claiming policymakers would have cut rates earlier with accurate data. The revelation came just days after a softer-than-expected July CPI report showed inflation rising just 0.2% monthly.
Treasury Secretary’s Bold Prediction
Bessent’s (贝森特) comments broke conventional boundaries between Treasury and Federal Reserve operations:
– Advocated for 50-bps cut instead of standard 25-bps move
– Cited historical precedent of September 2024 cut responding to employment concerns
– Directly contradicted Fed’s June/July decisions to hold rates steady
This public pressure continues Trump administration’s pattern of challenging Fed independence. The proposed Fed rate cut would bring rates near the 3% neutral level the Fed considers neither stimulative nor restrictive.
Political Pressure on the Fed Intensifies
Simultaneously, the Trump administration escalated its campaign to influence monetary policy by revealing a list of 11 potential successors to Fed Chair Jerome Powell (鲍威尔). Two senior officials confirmed the previously undisclosed candidates include Jefferies strategist David Zervos (泽沃斯), former Fed Governor Larry Lindsey (拉里·林赛), and BlackRock’s Rick Rieder (里克·里德).
Trump’s Candidate List for Fed Chair
The expanded candidate pool blends established policymakers with outside voices:
– Federal Reserve insiders: Governor Christopher Waller (克里斯托弗·沃勒), Vice Chair Philip Jefferson (菲利普·杰斐逊)
– Regional Fed presidents: Lorie Logan (洛莉·洛根) of Dallas
– Political economists: Former Bush advisor Mark Saumerlin (马克·萨默林)
– Trump loyalists: NEC Director Kevin Hassett (凯文·哈塞特)
This comes amid President Trump’s longstanding criticism of Powell’s (鲍威尔) leadership, having previously accused the Fed of “political motivation” for cutting rates near the 2024 election.
A History of Tension
The administration’s latest moves continue a pattern of unprecedented pressure:
– 2020: Trump threatened to demote Powell (鲍威尔) amid rate hike disagreements
– 2024: Publicly blamed Fed for recession that never materialized
– 2025: Bessent (贝森特) becomes first Treasury Secretary to publicly advocate specific cut magnitude
The looming September Fed rate cut decision now carries extraordinary political weight with the Jackson Hole symposium (August 21-23) potentially offering policy clues.
Sector Rotation: Small Caps Shine, Tech Takes a Breather
Market reaction to the Fed rate cut speculation triggered dramatic sector rotation. The Russell 2000 small-cap index jumped 2% as investors shifted capital from the “Magnificent Seven” tech giants toward companies more sensitive to borrowing costs.
Why Small Caps Benefit
Smaller companies typically gain disproportionately from rate cuts because:
– Higher debt dependency makes borrowing costs more impactful
– Domestic focus increases benefit from stimulated U.S. consumer spending
– Historically outperform large caps in first year after cuts begin (Source: Goldman Sachs research)
The prospect of a Fed rate cut particularly boosted sectors like materials (+1.69%) and healthcare (+1.58%), while defensive plays like consumer staples lagged.
Tech’s Mixed Performance
Mega-cap technology stocks showed divergence amid the rotation:
– AMD surged 5.37% on optimism about MI308 chip exports
– Nvidia and Tesla posted modest declines
– Oracle dropped 3% on cloud revenue concerns
This selective performance suggests investors are differentiating between AI beneficiaries and legacy tech as the Fed rate cut looms.
Chinese Stocks Surge: What’s Driving the Rally?
The Nasdaq Golden Dragon China Index (HXC) soared 2.08% as the Fed rate cut speculation converged with positive technical and fundamental factors. Chinese stocks haven’t seen such synchronized gains since the 2023 regulatory thaw.
Standout Performers
Multiple sectors participated in the rally:
– Fintech: Futu Holdings +6.2%
– Entertainment: Bilibili +6.1%, iQiyi +5.3%
– E-commerce: Pinduoduo +2.8%, JD.com +3.2%
– EVs: Li Auto +3.7%, NIO +3.1%
This broad-based surge suggests investors view Chinese equities as:
– Undervalued relative to U.S. peers
– Major beneficiaries of dollar weakness from Fed rate cuts
– Positioned for domestic stimulus measures
Catalysts Beyond Monetary Policy
While the Fed rate cut provided the ignition, other factors fueled gains:
– Technical rebounds from oversold conditions
– Short covering amid shifting sentiment
– Anticipation of China’s own policy support measures
Notably, the rally occurred despite ongoing U.S.-China trade tensions and delisting concerns.
What’s Next for Investors?
With markets pricing near-certainty of a September Fed rate cut, investors should prepare for multiple scenarios. The critical question becomes whether the Fed delivers 25 or 50 basis points – and how markets will react to either outcome.
Key Events to Watch
Three near-term catalysts could reshape expectations:
1. August 15: July Producer Price Index (PPI) report
2. August 21-23: Fed Jackson Hole Symposium
3. September 16-17: FOMC rate decision
Historical analysis shows markets typically advance 6 months post-first cut, but much depends on whether the economy avoids recession. (Source: Charles Schwab market analysis)
Portfolio Implications
Investors should consider:
– Increasing small-cap exposure through ETFs like IWM
– Adding Chinese ADRs selectively via KWEB
– Monitoring rate-sensitive sectors like housing (ITB) and autos
– Hedging against potential “sell the news” reaction post-Fed meeting
Crucially, the Fed rate cut isn’t occurring in isolation – it responds to slowing growth indicators that warrant caution.
Navigating the New Market Reality
The dramatic market response to potential Fed action underscores how monetary policy remains the dominant market driver. While Chinese stocks and small-caps offer near-term opportunity, investors should:
– Verify earnings sustainability beyond liquidity boosts
– Monitor credit spreads for early recession signals
– Diversify across market caps and geographies
– Prepare for volatility around the actual Fed rate cut announcement
The coming weeks will test whether this rally has fundamental legs or merely reflects speculative fervor. One truth remains: In an era of political pressure on central banks, investors must separate policy expectations from economic reality to avoid costly mistakes.
