Ahmad Assiri
In recent hours, the market’s focus has not been on fresh data, but rather on Fed Chair Jerome Powell’s remarks. His verbal emphasis on the current policy path reaffirmed last week’s discussions, with some caution around valuations. Powell stressed that easing will be gradual and that the Fed will not rush to loosen policy until it is confident that inflation has receded and tariff-driven pressures remain contained.
What caught attention, and circulated widely, was his comment that US equity valuations fairly elevated. While this comment was in the context of monitoring asset performance for financial stability rather than in the investor’s sense of valuation, it nonetheless seeded a layer of caution in sentiment. Even with US indices hovering near record highs, supported by defensive sectors, the underlying message is that the Fed is mindful of equity valuations versus historical levels. The reality is that while double-digit returns have become the market norm of late, and such performance is unlikely to persist in the long run.
Wall Street closed lower in response, though losses were modest. SPX fell around 0.6%, while Nasdaq dropped 0.7%, pressured by profit-taking in tech stocks despite Nvidia’s announcement of a $100 billion partnership with OpenAI to build advanced data centers, a boost for AI infrastructure but also reaching all time high seems as a good exit range for short term traders. The Dow bucked the trend, edging lower highlighting that selling was concentrated in growth stocks while cyclical and financial names found relative support.
In US Treasuries, moves were limited but notable. The 10-year yield eased to about 4.11%, while shorter maturities held firmer. This reflected investor bets on a gradual Fed easing cycle, with Powell’s caution on inflation anchoring expectations.
The dollar index DXY remained in a narrow range but leaned lower, weighed by repeated failures to break higher. With upside hope appears limited, the market favors range-bound strategies and mean-reversion plays.
Commodities remain the market’s hedge of choice, gold especially. The metal nearly touched $ 3,700 in late trade before settling above $3,750 amid profit-taking, which grows more sensitive as the rally extends. Today, gold looks like the hardest market for investors to ignore, combining fundamental backing with speculative flows. The consensus that gold deserves a bigger role in portfolios is giving structural support to its rally, further reinforced by its weak correlation with equities in recent weeks.
The broader picture shows on one side, confidence in technology stocks is intact by massive AI-driven investment. On the other, Powell’s hit on valuations and lingering inflation fears put a ceiling on excessive optimism. The path of least resistance remains higher, but with the likelihood of intermittent pullbacks that may create entry points.
Assiri is Research Strategist at Pepperstone
