Fed hike leaves Wall Street split after oil and bond-market shocks

Wall Street ended a turbulent week with no clear winner after the Federal Reserve raised interest rates, oil prices surged and Treasury yields briefly reached levels that unsettled investors. The Dow Jones Industrial Average lost 1.69% over the five sessions, closing Friday at 51,681. The S&P 500 finished almost unchanged at 7,650, while the Nasdaq Composite gained 0.72% after semiconductor shares recovered late in the week.

Smaller companies struggled most. The Russell 2000, which tends to be particularly sensitive to borrowing costs, fell 1.50%. At the same time, the CBOE Volatility Index declined 6.5% to 14.81, suggesting that market anxiety eased despite the sharp swings in individual sessions.

The account was reported by The Epoch Times.

A rate increase with more potentially ahead

On Wednesday, the Federal Reserve unanimously lifted its federal funds target by 25 basis points, taking the range to 3.75%–4%. It was the central bank’s first increase in three years and had been widely anticipated by investors.

The decision initially encouraged stocks because it demonstrated that officials were prepared to confront inflation. However, bond investors remained concerned that one rate increase would not be enough to ease pressure on longer-term government debt. The 10-year Treasury yield, after declining earlier in the day, moved back above 5% during the final hour of Wednesday’s session. Equities then gave up their gains, and the Dow closed 1.21% lower, its weakest day of the week.

The decline also reflected weakness in financial shares and Boeing, which warned of additional delays in producing its 737 aircraft.

Federal Reserve officials indicated that Wednesday’s move might not be the final increase. Sixteen of the 18 members of the Federal Open Market Committee forecast at least one further rise this year, while Chair Kevin Warsh did not provide a projection. Analysts cited by The Epoch Times said investors were interpreting another hike as the most likely outcome, with additional action possible if inflation remained persistent.

By Thursday, yields had retreated. The 30-year Treasury yield ended at 5.29%, and the 10-year yield closed at 4.93%, below the closely watched 5% level. That relief helped rate-sensitive parts of the market. The iShares Semiconductor ETF climbed 3.39%, while the Nasdaq rose 1.69% and the S&P 500 advanced 1.23%.

Oil shock spreads across sectors

The week’s market pressure began before the Fed meeting. Saudi Arabia canceled some oil shipments after drone attacks disrupted its export pipeline. Brent crude reached $110 a barrel on Monday, a four-month high, and remained above $108 on Tuesday.

Higher energy costs arrived alongside a rise in government-bond yields. The 10-year Treasury yield moved above 5% on Monday and finished slightly above that mark on Tuesday, the first such close since July 2007. The combination made stocks less attractive and raised concerns about the effect of expensive fuel on consumers and businesses.

The yield increase also reflected worries about fiscal policy, according to market specialists quoted by The Epoch Times. They said geopolitical risks and elevated energy prices could keep borrowing costs high for an extended period.

Conditions improved after reports indicated that Saudi Arabia expected to restore about half of the East-West pipeline’s capacity within days and return it to full operation within six weeks. Brent crude fell toward $104, while the 10-year yield moved nearer to 4.94%. Small-cap shares and semiconductor companies benefited as the pressure eased.

Banks were among the most exposed groups early in the week. Bank of America chief executive Brian Moynihan said at the Barclays Global Financial Services Conference that investment-banking fees were expected to fall by at least 10% in the third quarter, while trading revenue would be roughly unchanged. Bank of America shares dropped 5.14%, JPMorgan fell 1.70% and Wells Fargo declined 1.75%.

Restaurant companies also suffered as investors considered the impact of higher fuel and operating costs. Darden Restaurants lost 4.32%, CAVA Group fell 8.93% and Shake Shack dropped 8.25% on Tuesday, when energy shares were benefiting from crude’s advance.

Technology rebound faces more tests

Semiconductor stocks showed greater resilience than many other groups. The Nasdaq had fallen more than 1% intraday at the start of the week after weekend discussion of risks associated with artificial intelligence, though it recovered to finish Monday down 0.56%. Nvidia rose 0.57% on Tuesday and AMD gained 2.19%, even as Microsoft and Salesforce declined 1.64% and 1.46%, respectively.

Friday brought another source of potential turbulence: quadruple witching, when several types of stock and index derivatives expire at the same time. Investors also took profits after Thursday’s rally while watching renewed increases in bond yields. A Bank of Japan rate increase failed to strengthen the yen against the dollar.

The S&P 500 and Nasdaq nevertheless finished Friday up 0.17% and 0.39%. The Dow slipped 0.16%, and the Russell 2000 fell 0.50%.

The next major test identified by market strategists is the core personal-consumption-expenditures inflation report due on Sept. 30. Its importance has increased because the Fed has just raised rates and emphasized inflation control as a central priority. Investors remain alert to the possibility of further volatility in September and October, particularly if oil prices and Treasury yields stay elevated.