Fed Holds Steady, U.S. Stocks Trade in Narrow Range; Calm External Conditions Aid A-Share Opening

On July 27, Beijing time, the Fed announced the results of its July policy meeting, keeping the federal funds rate target range unchanged at 5.25%-5.50%, in line with broad market expectations. Following the decision, the three major U.S. stock indexes showed little reaction, trading in a narrow range throughout the day. At the close, the Dow Jones Industrial Average edged up 0.22% to 40,560.78 points; the S&P 500 was almost flat, down just 0.03%; and the Nasdaq Composite Index slipped 0.12% to 17,890.12 points.

Fed Statement Wording Tweaked; Market Reads as Dovish

The statement at this meeting saw adjustments compared to June: The Fed acknowledged inflation "remains elevated" but dropped the word "moderate," signaling increased confidence in price declines. At the same time, the committee reiterated that it is "not appropriate to cut rates until it has greater confidence that inflation is moving sustainably toward 2%." Most officials expect one to two rate cuts within the year, but the timing of the first cut may be delayed to September or December.

Fed Chair Jerome Powell said at the press conference that recent economic data are "broadly positive," the labor market remains "strong," but consumer spending has slowed slightly. He emphasized that the policy path will depend on data, not a preset course. The market interpreted Powell's tone as slightly softer than before, opening room for future rate cuts.

Clear Sector Divergence: Tech Stocks Under Pressure, Defensive Sectors Favored

On the market, large technology stocks were mixed. Apple and Google's parent Alphabet rose slightly, while Microsoft, Amazon, and Nvidia all fell, dragging the Nasdaq. Defensive sectors such as energy, utilities, and healthcare performed better, with notable capital inflows. Analysts noted that amid uncertainty over the rate turning point, investors tend to allocate to targets with stable earnings and reasonable valuations.

For Chinese ADRs, the Nasdaq Golden Dragon China Index fell 0.87%, mainly due to a pullback in some e-commerce stocks. Alibaba fell 1.2%, JD.com fell 1.5%, but the new energy vehicle sector bucked the trend, with NIO rising over 3% and XPeng up 2.1%.

Impact on A-Shares: Calm External Conditions Provide a Window

The Fed's policy tone alleviated market concerns about tightening. Overnight, U.S. Treasury yields edged down, with the 10-year yield falling to 4.18%. The U.S. dollar index weakened to around 103.8, easing pressure on the renminbi exchange rate. Analysts believe that the marginal improvement in external liquidity conditions may help boost A-share market sentiment.

Yang Delong, chief economist of First Seafront Fund, said the Fed's steady stance is in line with expectations, and global funds may continue to flow to valuation troughs, highlighting the medium-to-long-term appeal of A-shares. In the near term, the market will focus on domestic policy directions, including whether the upcoming Politburo meeting will release incremental pro-growth signals.

From a technical perspective, the three major A-share indexes have been in a box range recently with shrinking volume. If external markets remain stable, A-shares may find support around the 3200 level and launch a rebound. In terms of sectors, attention can be paid to consumption with strong earnings certainty, photovoltaics, and domestic substitution.

Institutional Views: Rate Cut Expectations Remain the Theme for H2

Many institutions believe a Fed rate cut within the year is still highly probable. A recent Goldman Sachs report pointed out that if August nonfarm payroll data and CPI continue to fall, the probability of a September rate cut could rise to 65%. JPMorgan Chase, meanwhile, believes the market has already fully priced in a 50-basis-point rate cut this year, but the actual policy path remains uncertain.

For A-shares, the easing of external pressure helps capital return. Northbound capital has recently shown net inflows, with total net purchases exceeding 80 billion yuan in the first two days of this week. Going forward, attention should be paid to domestic economic data and policy implementation effects, such as accelerated special bond issuance and increased consumption stimulus in H2, which may further boost market confidence recovery.

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