Article by: Tide Research
The Federal Reserve raised interest rates for the first time in over three years; after the announcement, U.S. equities weakened, with the Dow Jones dropping more than 600 points, while the Nasdaq remained nearly flat. Last night’s market showed clear divergence: long-term U.S. Treasury yields rose again to elevated levels, performance among the Magnificent Seven varied, yet optical communications and certain semiconductor stocks rose against the trend; meanwhile, oil prices ended their streak of gains, with the energy sector leading losses. With the rate hike now implemented, the market’s focus shifts to how many more increases are expected this year and how long high rates will persist. Whether AI hardware can continue to withstand interest rate pressure will be a key short-term indicator for technology stocks.
The Dow Jones fell 631 points, while the Nasdaq closed nearly flat.
The Dow Jones fell 1.21% to 51,461.78, the S&P 500 dropped 0.44% to 7,552.14, and the Nasdaq declined 0.01% to 25,978.43. The VIX rose 6.9% to 18.38.
The Philadelphia Semiconductor Index rose 0.63%. Among the Magnificent Seven, four advanced and three declined: NVIDIA increased 0.82%, Meta rose 0.46%, Tesla gained 0.42%, and Apple climbed 0.32%; Microsoft fell 1.37%, Amazon dropped 0.99%, and Google declined 0.61%. The Nasdaq Golden China Index fell 0.55% to 5,734.17.
The bond market has seen greater volatility. The 2-year U.S. Treasury yield rose to 4.738%, the 10-year yield increased to 5.00%, and the U.S. Dollar Index climbed 0.63%.
WTI crude oil fell 3.2% to $102.43, while Brent crude oil dropped 2.69% to $105.83. Spot gold declined 0.69% to $4,263.19. Bitcoin is trading around $76,300, and Ethereum is approximately $2,420.
The Fed raised interest rates for the first time, and the dot plot remains hawkish.
The Federal Reserve raised the federal funds rate by 25 basis points to a range of 3.75% to 4.00%, with unanimous voting—the first rate hike since 2023.
In the latest economic projections, 16 out of 18 officials indicated that at least one more rate hike is needed this year, with the median policy rate forecast to rise to 4.00%–4.25% by year-end. Waugh continued to emphasize inflationary pressures at the press conference, noting that recent economic, employment, and investment data have strengthened compared to the previous meeting.
The August retail sales released today were also strong, rising 1.2% month-over-month, with July’s data revised to a 0.5% decline; sales in the control group used for GDP calculations increased 1.4%.
Consumer resilience has given the Fed room to continue tightening. Following the announcement, U.S. Treasury yields rose in tandem; the focus of trading will now shift to the number of remaining rate hikes this year and how long high rates will be maintained.
Optical communications led the gains, with AI hardware remaining active.
Optical communications was the strongest sector among tech stocks last night. Lumentum rose nearly 10%, and Coherent rose nearly 7%, as the AI connectivity segment, which had been undergoing prolonged adjustments, saw a significant rebound.
Chip stocks are also benefiting from industry catalysts. Intel rose 4% after reports that SK Hynix is discussing cooperation with Intel to produce memory chips in the U.S., potentially involving the use of Intel’s Ohio factory capacity.
Long-term interest rates are rising again, which is not favorable for high-valuation tech stocks; however, high-speed interconnect, storage, and domestic chip manufacturing continue to be supported by concrete orders and industry developments.
Oil prices decline, leading to the worst performance in the energy sector.
Crude oil ended its previous streak of consecutive gains. Saudi Arabia increased supply via Oman, easing some of the Middle East supply pressures, and the energy sector fell about 3% on the day, becoming the weakest performer in the S&P 500.
Chevron fell 2.9%, ExxonMobil fell 3.5%, and ConocoPhillips and Devon Energy both dropped more than 5%.
Although oil prices have declined, they remain above $100 per barrel. Whether energy prices continue to cool will influence the pace of inflation decline and factor into the Fed’s future policy decisions.
Today's Focus
Today, focus on U.S. employment and housing data. Initial jobless claims, new home starts, building permits, and the Philadelphia Fed manufacturing index will be released before U.S. markets open, followed later by existing home sales data.
Long-term interest rates are already at high levels; if there is a significant deviation in real estate or employment data, the bond market may react first.
On the tech stock front, continue to focus on optical communications and semiconductors. Both sectors strengthened against the market last night; today, pay close attention to whether this strength can be sustained.