The Fed moves rates again as Wall Street enters a new phase
The Fed raised rates for the first time in more than three years, and the market is now asking a different question: not when rates come down, but how long they stay up. Here's what that means for the Nasdaq, bonds and oil.
Wall Street ended the week with mixed results as investors processed a new Federal Reserve decision and assessed what another rate hike means for the markets.
The Nasdaq gained 0.7% for the week, while the S&P 500 fell 0.1% and the Dow Jones declined 1.7%. Performance varied across sectors, with technology companies showing greater resilience as investors continued adjusting their expectations around interest rates.
With the Fed's decision now behind them, markets are turning their attention to upcoming economic data, oil prices, Treasury yields, and renewed talks between the United States and China.
The Fed raises rates again
The main event of the week was the Federal Reserve's decision on Wednesday.
The U.S. central bank raised its benchmark interest rate by 25 basis points, bringing the target range to 3.75%-4%. This was the Fed's first rate hike in more than three years.
The Fed's latest projections also point to the possibility of another hike before the end of 2026, although the path will depend on how inflation and the labor market evolve.
This changes the market backdrop once again. Over the past few months, much of the focus had been on when interest rates could begin to fall. Now, markets have to consider the possibility that monetary policy could become more restrictive again.
The Fed's message also leaves an important question for the coming months: how long will rates need to remain elevated for inflation to continue moving toward the 2% target?
Oil prices begin to lose momentum
Oil, which had been one of the main sources of pressure in recent weeks, began to pull back.
Brent crude rose above $100 per barrel, but fell more than 2% on Monday, while WTI also declined. The move was linked to signs of a potential recovery in oil flows and progress in negotiations related to the conflict in the Middle East.
The moderation in prices matters for markets because oil has both a direct and indirect impact on inflation. Lower oil prices can reduce transportation and production costs while also easing some pressure on consumer prices.
However, the relief remains limited. Oil is still trading at elevated levels, and any supply disruption or increase in geopolitical tensions could quickly change the picture.
For that reason, oil prices will remain an important indicator for investors to watch.
Bonds continue to compete with stocks
U.S. Treasury yields also remained at the center of attention.
The yield on the 10-year Treasury moved close to 5% again during the week before falling to around 4.96% on Monday.
Treasury yields matter because they influence how investors value stocks. When yields rise, bonds can become more attractive, while higher interest rates also increase financing costs for companies and consumers.
Growth and technology companies are particularly sensitive to these moves because higher discount rates reduce the present value of expected future earnings.
On the other hand, a moderation in yields can help stocks recover some of their recent losses, as seen at the beginning of this week.
Technology and AI return to the spotlight
Technology and artificial intelligence stocks continue to be among the market's main drivers.
After several pressured sessions, Nasdaq futures opened higher on Monday, supported in part by lower oil prices and Treasury yields.
Artificial intelligence continues to generate significant growth expectations, particularly around semiconductors and the infrastructure needed to develop new models and applications.
But markets are also paying closer attention to valuations. With interest rates under renewed pressure, investors have to consider how much they are willing to pay today for growth expectations that may only materialize over the coming years.
This keeps major technology companies at the center of the market discussion.
U.S. and China return to the center of attention
While last week was dominated primarily by the Fed, this week brings another major focus: the relationship between the United States and China.
Donald Trump and Xi Jinping are expected to meet between September 23 and 25, with trade, tariffs, technology, and artificial intelligence among the key topics.
For markets, any signal about the relationship between the two economies could be significant. Technology, semiconductors, manufacturing, and international trade all have substantial exposure to U.S.-China relations.
After months in which trade tensions have created uncertainty for businesses, investors will be watching for any developments that could change expectations around tariffs or trade restrictions.
Economic data takes center stage
With the Fed's decision now known, upcoming economic data will be key to determining how markets interpret the path for interest rates.
This week will bring the preliminary September PMIs, offering an early look at activity across the manufacturing and services sectors.
Investors will also receive weekly jobless claims, new home sales, and durable goods orders.
These indicators will be important because the Fed faces a complex balancing act: it needs to control inflation while also avoiding financial conditions that are so restrictive that they significantly weaken the economy.
Activity and employment data will help investors assess whether the U.S. economy continues to withstand elevated interest rates or whether signs of a slowdown are beginning to emerge.
A week shaped by new signals
Markets enter a new week following an important shift in U.S. monetary policy.
The Fed has raised rates again, Treasury yields remain elevated, and oil, although it has begun to retreat, is still at levels that could keep some pressure on inflation.
At the same time, technology stocks continue to show resilience, while discussions between the United States and China could create new moves across key sectors.
The focus will be on how these signals come together: higher rates, still-elevated oil prices, a resilient economy, and renewed trade negotiations between the world's two largest economies.
For investors, the focus this week will extend beyond the Fed's decision to the signals that can help determine how restrictive financial conditions will remain over the coming months and how companies and the broader economy respond to this new environment.
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Sources: Bloomberg, Reuters Energy, CNBC Markets, ISM Manufacturing Report