Nasdaq gains 4% in August as tech rebound offsets hawkish Fed

Equities posted their first monthly gain since May even as Fed Chair Kevin Warsh turned hawkish at Jackson Hole, leaving investors to weigh whether higher yields, a weaker dollar, and new highs can coexist.

The Nasdaq Composite gained 4.0% in August, its strongest monthly showing since May, as a rebound in mega-cap technology outweighed a hawkish Federal Reserve.

"Warsh appears to be talking up inflation so that he can claim credit for taming it when headline measures inevitably come down," Matthew J. Maley, chief market strategist at Miller Tabak + Co., said.

The S&P 500 rose more than 2% in its first monthly advance since May, while the dollar index slipped over the month and Treasury yields climbed on renewed inflation and deficit concerns. Gold, which had surged roughly 14% in August, reversed part of that debasement trade after Warsh's remarks.

The durability of the August setup now hinges on the Federal Open Market Committee's September meeting, where traders price a 60.4% chance of a quarter-point hike, up from about 56% before Jackson Hole.

Tech Leads as Yields Climb

Mega-cap technology drove the advance, with the sector's rebound offsetting pressure from higher long-term yields. Deutsche Bank expects the Fed to deliver 50 basis points of tightening this year, with increases at the September and December meetings, a view echoed by UOB, which said Warsh's emphasis on inflation risks "reinforces the elevated risks of policy tightening this year."

Dollar Firms After Warsh, Gold Reverses

The dollar index rose 0.2% to 104.30 on Aug. 28, heading for a weekly gain of 0.9%, as traders recalibrated rate expectations. The firmer greenback and higher rate risk weighed on gold, with heavy selling in the metal and silver erasing roughly $670 billion in market value within seven minutes, and pushed Bitcoin below $79,000. Susquehanna said Warsh's pledge to return inflation to the 2% target "strengthened the dollar and reversed part of the debasement trade."

Fed at Odds With Treasury

Warsh's reiteration that short-term rates should remain the main instrument of monetary policy implies the Fed will continue to shorten the average duration of its balance sheet, Gavekal Research said. That "seems to put the Fed at odds with the US Treasury," which earlier in August announced it would step up buybacks of long-term securities to prevent yields rising further at the long end.

The tension between a hawkish Fed, rising yields, and a weaker dollar will determine whether the August rebound extends. Nomura said Warsh's remarks mean the Fed has become more sensitive to near-term inflation readings, raising the stakes for upcoming data before the September meeting. If yields keep climbing while the dollar weakens, equity valuations face renewed pressure — or the divergence could signal stronger growth that supports the rally.

This article is for informational purposes only and does not constitute investment advice.