US stocks enjoyed a robust rally on Thursday, with all three major indices closing higher just one day after the Federal Reserve delivered its first rate hike since July 2023. The S&P 500 climbed 1.1%, the Nasdaq Composite led with a 1.7% gain, and the Dow Jones Industrial Average rose 316 points, or 0.6%. The small-cap Russell 2000 also advanced 0.5%, while nine of the S&P 500's eleven sectors ended in positive territory. The driving force was heavily concentrated in technology, with Nvidia Corp (NASDAQ: NVDA), Amazon.com Inc (NASDAQ: AMZN), Microsoft Corp (NASDAQ: MSFT), Intel Corp (NASDAQ: INTC), and Advanced Micro Devices Inc (NASDAQ: AMD) all posting significant gains.
"Many sectors were hit hard in anticipation of the Fed's hike, and now funds are starting to flow back," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. "Investors are taking advantage of the dip to buy on weakness."
In an unusual twist following a hawkish hike, bonds rallied alongside equities. The 10-year Treasury yield fell from Wednesday's 5.02% high to as low as 4.93%, while the 30-year yield declined from 5.36% to 5.27%. Meanwhile, US crude oil briefly dipped below $100 per barrel for the first time since last Friday. These seemingly contradictory positive developments emerged simultaneously, creating a multi-layered narrative about what the market is truly pricing in now that the rate hike is behind us.
Where to Begin: The Oil Price Retreat Signals Easing Geopolitical Tensions
The most direct external catalyst for this rebound came from a cooling in the oil market. During Thursday's session, US WTI crude briefly fell below the $100 mark, with Brent touching a low of $101 — just two days after Brent stood above $109. By the close, WTI had narrowed its losses to just 0.5%, settling at $101.91, while Brent slipped 0.9% to $104.82. Two downward drivers converged on the day. First, reports emerged that President Trump is expected to meet with leaders of the six Gulf Cooperation Council nations during next week's UN General Assembly in New York to discuss next steps in the Iran conflict. Trump told reporters he "hopes we are nearing the end of the war." Second, Saudi Aramco is reportedly working to bypass damaged sections of its East-West pipeline, planning to restore roughly half its capacity within days — around 2 to 2.5 million barrels per day. Full repairs are expected to take about six weeks, but the news of partial restoration was enough to ease the most acute concerns about short-term supply disruptions.
Still, the absolute level of oil prices remains unsettling. Year-to-date, WTI and Brent are both up more than 70%. The average US retail gasoline price rose another 7 cents to $4.43 per gallon on Thursday, while diesel jumped 8 cents to $6.39 — 93 cents higher than a month ago. Ross Mayfield, investment strategy analyst at Baird, described the oil shock as "the only major headwind the global economy is currently facing." "When an oil shock persists this long, it inevitably seeps into the broader price system," he said. "But any relief — it's good for consumers, it's good for businesses, and it can also make the Fed less hawkish."
Why Are Treasury Yields Declining After a Hawkish Move?
The bond market's reaction is equally telling. Against the backdrop of a Fed rate hike and a dot plot signaling another hike within the year, Treasury yields declined — a subtle signal that cooling macro uncertainty is reassuring investors, and that the hawkish tone from Chair Kevin Warsh's Wednesday press conference has been largely digested. The newly appointed Fed chair exhibited what the market perceived as "restrained hawkishness" during his first press conference.
Krishna Guha, vice chairman at Evercore ISI, commented: "Warsh's press conference was clear, confident, consistent in its hawkish stance, but without appearing unhinged." Rogier Quaedvlieg, economist at ABN-AMRO, offered another interpretation: "Warsh resisted pressure from the Trump administration and preserved the Fed's credibility by delivering on the previously signaled hike." Chris Zaccarelli, CIO at Northlight Asset Management, was more colorful in his assessment — "Warsh threaded the needle with precision."
Market pricing is adjusting quickly. The CME FedWatch tool shows traders currently pricing in roughly a 54% probability of another 25-basis-point hike at the October meeting, up from just 27% a week ago. In other words, the market is gradually accepting the reality that the tightening cycle is not yet over — but the adjustment is measured and orderly, not panic-driven.
Overseas bond markets are also cooperating with this easing sentiment. The Bank of England chose to hold rates at 3.75% on Thursday, in a 6-3 vote, while unexpectedly scrapping plans to sell long-dated UK government bonds. Instead, it stated it would hold approximately £222 billion of gilts maturing between 2026 and 2034 until maturity. This shift pushed the UK 30-year yield down 4 basis points to 5.82%, with the 10-year falling to 5.262%.
Jensen Huang's Doubling Forecast: AI Sentiment Repair Takes Center Stage
Beyond the macro tailwinds, the tech rally had a more specific catalyst — Nvidia CEO Jensen Huang signaled at an event in Scotland convened by King Charles III that the company expects to sell twice as many chips next year as it does this year. "AI is creating enormous value for different industries and economies. You can see it in almost every country we operate in — people want to invest in AI," Huang said. He also noted that the current bottleneck is not demand but Nvidia's ability to manufacture the chips.
This statement carries weight. Nvidia has already projected roughly 70% revenue growth for the fiscal year ending January 2028, targeting approximately $673 billion in revenue. Huang revealed last fall that the company had delivered 6 million Blackwell GPUs over four quarters. This "sales doubling" assertion further reinforces confidence in the longevity of the AI infrastructure investment cycle.
The Key Question: Is This a Bounce or a Full Reversal?
Thursday's rally could easily create an illusion that the "all-clear" has sounded, but several factors warrant caution. Jefferies' strategy research offers a less comforting historical reference: in the month following the first rate hike, the S&P 500 has averaged a return of negative 1.6%; three months out, the average is negative 4.2% — the weakest performance across all periods. Jane Gibbons, equity strategist at the firm, noted: "Looking at the S&P 500's historical returns during rate hike cycles since 1983, rate hikes are not favorable for equity returns."
Huatai Securities' strategy team observed that while a rebound after September's hike is plausible, such bounces tend to lack both durability and elasticity. The rationale is that the nature of this tightening cycle has shifted: against the backdrop of stronger-than-expected employment data and rising energy prices from the Middle East conflict, the hike can no longer be characterized as "preventive" — it is more a reactive response to recent data, with the risk of falling behind the curve increasing.
Morgan Stanley, JPMorgan, and Goldman Sachs hold relatively more optimistic stances, arguing that the market has already priced in some degree of policy shift. Corporate earnings and economic growth remain the primary supports for equities, and a single rate hike is unlikely to change the medium-term direction of this bull run. Goldman Sachs noted in a research report that high rates are a headwind for stocks, but not a force that ends bull markets. As long as earnings growth remains robust and corporate balance sheets stay healthy, the US bull market has a solid foundation to continue.
The tension between these two outlooks ultimately hinges on one key variable: how long oil prices remain elevated. If the US-Iran conflict makes substantive diplomatic progress — with Trump's upcoming meeting with Gulf leaders serving as a key observation window — inflation expectations could recede, and the Fed's tightening path would become more moderate. Conversely, if oil continues to hover above $100, the transition of high rates from a "risk scenario" to a "base case" would exert sustained pressure on valuations.
Triple Witching Looms: Friday Faces a Liquidity Test
For tonight, Wall Street is bracing for potential volatility. Friday marks the quarterly "triple witching" — when stock index futures, index options, and single-stock options all expire simultaneously. According to Bluekurtic Market Insights, its historical track record is notoriously poor. Data tracking performance since 2000 shows a fairly consistent trend: since 2012, the S&P 500 has closed lower on 12 of 14 triple witching days. The only two exceptions during that period were 2017 and 2025, when the index managed modest gains of 0.2% and 0.5%, respectively.
With over $2 trillion in notional delta of options expiring at once, market observers warn this quarterly liquidity event could trigger downside volatility. This upcoming expiration coincides with what is historically the most challenging month for equities. Although the S&P 500 has so far weathered these seasonal headwinds with an unusually calm 0.3% gain, Friday's massive expiration event could serve as the ultimate test of how this month's performance holds up.
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