A wave of optimism fueled by expectations of looser monetary policy propelled U.S. equities and cryptocurrencies higher. The tech-centric Nasdaq Composite surged 1.84%, while the Russell 2000, a barometer for small-cap stocks, jumped 2.35%. Reflecting the broader risk-on sentiment, Bitcoin recorded gains of 0.74%.
The rally was largely attributed to a sharp spike in market anticipation for a Federal Reserve interest rate cut in September. Following a revision to U.S. jobs data showing 258,000 fewer people employed than previously reported, investor projections for a Fed cut at the September meeting surged above 90%.
Despite the positive momentum, analysts express concern over the rally’s longevity. They note that the surge appears heavily driven by algorithmic trading and lacks strong fundamental economic underpinnings, pointing to signs of market froth and elevated risk-taking behavior. The persistent macroeconomic uncertainty is cited as a significant near-term risk factor.
Analysts warn that cryptocurrency markets, having moved broadly in tandem with equities during this tech-led surge, remain vulnerable to a pullback should U.S. stocks reverse their gains. This vulnerability is partly reflected in options market activity, where increased demand for protective positioning in Bitcoin indicates underlying investor caution regarding potential downside risks.