Markets Recover After Fed-Induced Selloff
A day after the Federal Reserve delivered its first interest rate increase since July 2023, investors returned to equities on Thursday, driving a broad rally. The previous session had seen stocks tumble as markets reacted to the central bank's move and to tough inflation rhetoric from Fed Chair Kevin Warsh. By mid-morning Thursday, the S&P 500 stood at 7,622.01, up 0.93%. The Dow Jones Industrial Average had gained 230 points, or 0.45%, to reach 51,691.90, while the Nasdaq 100 climbed 1.59% to 29,404.88.[S1]
The rebound came as pressure from bond yields and oil prices eased. Brent crude fell 3% to around $102 per barrel after touching $110 earlier in the week, and US oil dropped 2% to $100. Those declines helped restore some appetite for risk. According to Tom Essaye, founder of Sevens Report Research, the initial selloff stemmed from a lack of clarity: markets had hoped for guidance on rate hikes from the Fed on Wednesday, but instead received more uncertainty, which he identified as the underlying reason stocks and bonds dropped after Warsh's press conference.[S1]
December Hike Still on the Table
Despite Thursday's recovery, investors are not ruling out further tightening. Markets see the potential for another rate hike in December, reflecting the hawkish tone of the Fed meeting. Warsh described the economy as strong and characterized the increase as removing a dose of accommodation, though he stopped short of providing additional guidance, consistent with his style as Fed chief. Bob Edwards, chief investment officer at Edwards Asset Management, said in an email that with the rate hike now past, stocks can move on as uncertainty has faded. He expects one more hike in December and noted that the Fed is unlikely to raise rates in October, so close to the midterm elections.[S1]
