Moderate U.S. stocks rebounded on Monday, lifting technology shares like the Nasdaq and smaller stocks broadly, including crypto. However, concerns about persistent macroeconomic headwinds and market overheating persist despite the positive momentum.

Technical Rally Fuels Index Gains

The market upside appeared partial, as reflected in divergences in index performance. The Nasdaq climbed 1.84%, while the Russell 2000, an index sensitive to U.S. small-cap stocks, advanced by 2.35%. However, Bitcoin movement was overshadowed by the broader market gains, closing the day with only a slight 0.74% increase according to CoinGecko data.

Shifted Sentiment Driven by Job Data Revisions

The market recovery appears correlated with sentiment shifts following the revelation that existing job figures from May and June were revised downward by approximately 258,000 positions. These downward corrections have significantly increased year-over-year job growth figures, contributing to a surge in expectations for near-term Federal Reserve actions.

The probability of a 25 basis point rate cut by the Federal Reserve in September has surged to over 90%, according to the CME’s FedWatch Tool.

Analysts Offer Cautious Outlook

While traders experienced the rebound, market participants voiced a mixture of views. Jake Ostrovskis from Wintermute suggested the recovery “looks fairly machine-driven,” pointing to “plenty of signs of froth” and cautioning about “high levels of risk taking.” The main challenge, he continued, resides in unresolved macro issues.

Unanswered Macroeconomic Questions

The primary unresolved problem hindering sustained market confidence relates to the Fed’s policy path and broader economic health. Recent market selloffs remain unexplained amid ongoing tariff debates and a preceding abrupt dismissal of the Bureau of Labor Statistics Commissioner.

This dismissal has added to political uncertainty. Despite policy unpredictability, the event did not alleviate macroeconomic concerns.

Furthermore, options markets indicate caution, seeing “put demand” – the buying of contracts speculating on a decline – in the $105,000 to $110,000 Bitcoin range, suggesting investors are positioning for potential downturns rather than simply riding a market upswing.

“These levels of risk taking can often go on for a while,” said Ostrovskis. He added, “If the U.S. stock market rolls over, crypto will follow suit.”

Ongoing Risk Factors

Several factors keep markets on edge despite recent gains. The news flow highlights a climb in U.S. stocks, a prominent presence of Commodity Trading Advisors (CTAs), a crowded short US Dollar position, and potentially setting the stage for a correction. Ostrovskis identified these elements along with the unresolved U.S.-centric issues as key potential headwinds.