On August 22, Federal Reserve Chairman Powell delivered a significant speech at the Jackson Hole Global Central Bank meeting, releasing dovish signals by emphasizing employment risks and hinting at potential rate cuts. The probability of a 25 basis point Fed rate cut in September has increased substantially. Although Powell acknowledged the clear impact of tariff wars on consumer prices, he suggested this effect would not persist for long and could be viewed as a one-time shock that the central bank could disregard. He indicated that given the labor market may face increasing downside risks, a sustained rise in inflation is unlikely to occur.

The current downside risks facing employment present a challenging situation, suggesting the Fed may cut rates two to three times within the year. The expectation is for one rate cut in September and 1-2 additional cuts before year-end, reducing the US benchmark rate from the current 4.25%-4.5% range to below 4%. This would lower funding costs in the economy to boost employment, drive US economic recovery, and avoid recession. China's central bank may follow the Fed with rate cuts and reserve requirement ratio reductions, which would also provide positive support for Chinese stock markets.

If the Fed cuts rates in September, it may provide some boost to US stock performance. However, considering US stocks are valued at historically high levels, questions remain about how much Fed rate cuts can actually drive US stocks higher. Warren Buffett's continued significant reduction in US stock holdings reflects his concerns about excessive US stock valuations.

Fed rate cuts would also provide some boost to bond markets, commodities may experience certain rebounds, and the US dollar index could continue to decline. The A-share market has already established a bull market trend, with trading volume exceeding 2 trillion yuan for eight consecutive trading days, and the Shanghai Composite Index successfully standing above 3,800 points. From a causal perspective, favorable timing, geography, and human factors have jointly boosted investor confidence, including policy support and capital inflows. Currently, five streams of capital are flowing into the stock market, driving market performance to continuously exceed expectations.

The first stream is the major transfer of household savings to capital markets. In July, household deposits decreased by 1.1 trillion yuan while non-bank deposits increased by 2.14 trillion yuan, possibly indicating residents are entering the market through stock purchases or fund investments. The second stream consists of funds flowing out of bond markets and into stock markets to increase equity asset allocation ratios. The third stream comprises funds flowing out of real estate markets and seeking opportunities in stock markets. Given the current sluggish real estate transactions and weak expectations for continued housing price increases, this has driven capital outflows from real estate into stock markets. The fourth stream involves capital withdrawing from traditional industries, especially overcapacity sectors, becoming "reinforcements" for the stock market. Many traditional industries lack investment opportunities, so some capital from these sectors enters capital markets to allocate quality stocks and funds, representing a new approach to corporate transformation. The fifth stream is foreign capital inflows. This year, foreign investors have gained new recognition of China's advantages in technological innovation, particularly after DeepSeek's emergence. Foreign capital has accelerated inflows, exceeding $10 billion in the first half of the year, with potentially accelerated inflows expected in the second half.

At the end of last year, the "Ten Predictions for 2025" were proposed, explicitly stating that A-shares and Hong Kong stocks would experience bull market trends this year. This prediction has now been perfectly validated. This bull market cycle is expected to last 2-3 years, characterized not as a fast or frenzied bull market, but sustained by continuous capital inflows. Compared to the 2007 and 2015 market cycles, the common feature is that rising markets attract more capital inflows, driving index breakthroughs upward.

The difference is that current economic fundamentals have not shown obvious improvement. Perhaps only after next year or the year after, when stock markets complete their gradual bull run, can they truly boost consumption, enhance market confidence, and drive fundamental improvements in both traditional and technological innovation industries. While investor sentiment is currently high, on one hand, everyone should maintain confidence and believe this bull market will continue; on the other hand, risk control is essential, and leveraging should be avoided. The 2015 bull market became a fast and frenzied bull precisely because substantial off-exchange financing flooded in, causing excessive market leverage that ultimately triggered the stock market crash in the second half of 2015. This lesson should be learned. Investors are advised not to use leverage but to invest with spare money, achieving stable returns and good investment performance in this gradual bull market.