📈 Weekly Market Update: Powell’s Jackson Hole Sparks Record Rally

This week delivered the most explosive market rally of 2025 as Federal Reserve Chair Jerome Powell’s Jackson Hole speech ignited a massive risk-on surge. The Dow hit its first record close of the year, while the fear gauge VIX plunged to its lowest level since Christmas Eve. After five straight days of losses, markets roared back with conviction as Powell opened the door wide for September rate cuts.

📊 What’s Happening

Powell’s Dovish Pivot Sends Markets Soaring

Jerome Powell delivered exactly what Wall Street wanted to hear at Jackson Hole on Friday. His key message: “The balance of risks may warrant adjusting our policy stance”. This dovish signal sent the probability of a September rate cut skyrocketing to 91.3% from just 70% earlier in the morning. The result? An absolutely explosive market reaction.

The Dow Jones surged 846 points (1.9%) to its first record close since December, while the S&P 500 jumped 1.5% and the Nasdaq climbed 1.9%. Perhaps most tellingly, the Russell 2000 small-cap index exploded 4% higher - its biggest single-day gain in months and a clear signal that investors are betting on rate cuts benefiting smaller, more economically sensitive companies.

Tech Selloff Creates Rotation Opportunity

Before Friday’s rally, this week was dominated by a brutal tech selloff that saw some of the year’s biggest winners come crashing down. Palantir Technologies, the S&P 500’s top performer in 2025 with gains over 100%, suffered a devastating 9% drop on Tuesday alone. The AI darling fell for five consecutive sessions, losing over 15% from its recent peak.

Oracle plunged 5.8% following reports of major reorganization and the departure of its longtime Chief Security Officer after 40 years. The tech giant has been struggling with cost control amid massive AI infrastructure investments.

Small Caps Steal the Show

The week’s real winner was the small-cap sector, which massively outperformed as investors rotated toward rate-sensitive stocks. The Russell 2000 gained 2.9% for the week through Tuesday compared to just 1.1% for the S&P 500. Companies like Chemours (+17%), Hillenbrand (+14%), and Dream Finders Homes (+12%) led the charge.

Retail Earnings Paint Mixed Picture

Major retailers provided a reality check on the tariff impact. Home Depot reported solid Q2 results but warned of gradual tariff-driven cost increases as they replenish inventory at higher post-tariff prices. Meanwhile, Target disappointed with another quarter of declining sales and announced a CEO transition with Brian Cornell stepping down in February.

Corporate Highlights

The week’s biggest corporate story was Intel’s $2 billion lifeline from SoftBank at $23 per share. This strategic investment provides crucial support for the struggling chipmaker’s turnaround efforts, with SoftBank becoming Intel’s sixth-largest shareholder.

💡 Why It Matters

The Fed Put is Back

Powell’s Jackson Hole speech essentially restored the Fed put - the market’s confidence that the central bank will support asset prices when needed. His acknowledgment that “downside risks to employment are rising” and could “manifest rapidly through significant layoffs” signals the Fed’s priority has shifted from fighting inflation to supporting the labor market.

Market Structure is Shifting

This week confirmed a fundamental rotation is underway. The fact that small caps outperformed mega-cap tech for multiple sessions suggests investors are positioning for a lower rate environment where economically sensitive stocks benefit most. The VIX’s collapse to 14.22 - its lowest level since late December - shows fear has been replaced by optimism.

Tariff Impact Remains Manageable

Despite widespread fears, retail earnings suggest tariff impacts are being absorbed relatively well so far. Overall inflation remains at 2.7%, below January’s 3% rate before Trump took office. This gives the Fed room to cut rates without worrying about reigniting price pressures.

🎯 Opportunity

Rate Cut Beneficiaries Are Just Getting Started

History suggests this small-cap rally has significant runway ahead. Analysis shows that when the Russell 2000 breaks above its 200-day moving average after a breakdown, it tends to deliver 18.1% gains over the following year - double its long-term average. Key sectors to watch include:

• Homebuilders and construction (Builders FirstSource +8%, Mohawk Industries +7%)

• Regional banks benefiting from steepening yield curves

• Small-cap industrials with high operational leverage

Solar Stocks Catching Fire

The prospect of lower borrowing costs sparked a massive solar rally, with First Solar jumping 9.7% and Sunrun soaring 11%. Clean energy infrastructure plays could benefit significantly from reduced financing costs.

Technology Dip-Buying Opportunity

The tech selloff has created attractive entry points in quality names. Despite Palantir’s 15% decline from peaks, the company still trades at extreme valuations with a P/E ratio exceeding 580x. However, retail investors are already buying the dip, with $59 million flowing into Palantir during its decline.

🎯 Bottom Line

This week marked a decisive shift in market dynamics as Powell’s dovish pivot reignited the “don’t fight the Fed” playbook. The 91% probability of September rate cuts has unleashed a powerful rotation from mega-cap tech into economically sensitive small caps and rate-sensitive sectors.

The VIX’s collapse to 14.22 and the Dow’s first record close of 2025 signal that risk appetite is roaring back. With the Fed now clearly prioritizing employment over inflation concerns, investors have the green light to embrace riskier assets.

Key levels to watch: The S&P 500 needs to hold above 6,400 to maintain this bullish momentum. Small caps breaking above their 200-day moving average suggests the Russell 2000 rally is just beginning. The next catalyst comes with Nvidia earnings on August 27, which could determine if the tech rotation continues or reverses.

The message is clear: After months of uncertainty, Powell has given markets exactly what they wanted - and investors are responding with conviction.

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Disclaimer: This article constitutes the author’s personal views and is for entertainment and educational purposes only. It is not to be construed as financial advice in any form. Please do your own research and seek advice from a qualified financial advisor. From time to time, I have positions in all or some of the mentioned stocks when publishing this article. This is a disclosure - not a recommendation to buy or sell stocks.