Market Chugs Along Despite Fed's Hawkish Presser

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Sean Conlon, Chloe Taylor, Justina Lee and Sarah Min of CNBC report the Dow falls Friday and posts worst week since March as Treasury yields rise:  

The Dow Jones Industrial Average slid on Friday as traders wrapped up a volatile week and navigated rising Treasury yields and elevated oil prices along with the Federal Reserve’s first rate hike in three years.

The 30-stock Dow shed 95.40 points, or 0.18%, to close at 51,682.64. The S&P 500 rose 0.17% to end at 7,650.50, while the Nasdaq Composite advanced 0.39% to settle at 26,522.55.

Treasury yields increased, weighing on equities. The 10-year yield, which climbed above 5% to hit its highest level since July 2007 earlier in the week, briefly rose back above that threshold after sliding Thursday. It was last up almost 6 basis points at 5.006%.

U.S. crude oil finished the week relatively unchanged but remained above $100 per barrel. On Friday, West Texas Intermediate crude futures fell 1.58% to settle at $100.30 a barrel. Global benchmark Brent crude futures dropped 0.91% to close at $103.87 a barrel.

With Friday’s moves, the major stock averages notched a mixed week. The Dow posted its third straight losing week, sliding 1.7% for its worst performance since March. The S&P 500 was off about 0.1%. Only the tech-heavy Nasdaq posted a gain, up 0.7%.

U.S. markets staged a comeback on Thursday after the Fed’s decision to raise rates by a quarter percentage point — with the suggestion of at least one more rate increase this year — drove major market averages lower Wednesday.

But Thursday’s rally, especially in technology stocks, suggests investors are eager to look past the prospect of a higher-for-longer rate environment, returning instead to an artificial intelligence story that should continue to bolster corporate profits.

“Some uncertainty was removed this week when the Fed hiked rates,” said Scott Welch, chief investment officer at Certuity.

But Welch doesn’t think that the latest hike was a one-and-done move. In fact, he believes a rate hike cycle is just beginning and could dampen equity performance over the coming months.

“At some point, whether it’s October or after the elections, I think the Fed will hike at least one more time in 2026 and probably another time or two in 2027,” he said.

With that in mind, Welch forecasts that the pressure on Treasury yields will continue to be up. He also anticipates that oil prices will remain elevated for the next few months.

“While I’m not bearish on the market, I do think we’re kind of in a chug-along environment for the rest of this year,” the investment chief added.

This was a week marked by the Fed's rate hike. Everyone was expecting it but Fed Chair Kevin Warsh surprised markets with his hawkish presser, focusing more on rising inflation and hinting that more rate hikes lie ahead.

I'm a little skeptical that the Fed will hike again this year, given midterms are in November, but the market is tilting this way, for now.

A lot can happen from now till the end of October at the Fed's next meeting, so I'm more in the wait-and-see camp; let the data come in before rubber-stamping another rate hike.

If employment remains robust and inflation reports come in hotter-than-expected, then the Fed will likely increase. But again, I am far from convinced it will happen this year.

Alright, in other news, stocks were mixed this week, with Healthcare, Communications Services and  Information Technology leading the pack: 

Utilities. Financials and Real Estate were hit the hardest as bond yields rose.

In terms of stocks, here are the top-performing US large cap stocks this week (full list here): 

And here are the worst-performing US large cap stocks this week (full list here):


It is also worth remembering we are at the end of the quarter, when large funds all over the world rebalance their portfolios. That too adds to the price action/ volatility we see in stocks.

Lastly, the rise in long bond yields is a global phenomenon and that is unnerving many investors:

But we should also remember that the economy is strong, rates have normalized to historic levels and while elevated bond yields worry some investors, they lower future liabilities for pension plans and offer real choice relative to stocks for investors looking to lock in good yield.

Will something break in the credit markets? It's possible; right now, I do not see it.

Below, the Federal Reserve raised its benchmark interest rate Wednesday for the first time since 2023 in an effort to quell stubbornly-high inflation, a move that could spur a sharp response from the White House. Listen to Fed Chair Kevin Warsh's presser where he discusses their views.

Next, Ed Yardeni, one of the biggest stock bulls on Wall Street, talks about why he's slashing his year-end forecast for the S&P 500 Index to 7,900 from 8,400. He also says the Federal Reserve could raise interest rates two more times this year. Yardeni says Iran is likely to wreak havoc and keep oil prices elevated. He speaks on "Bloomberg Surveillance."

Lastly, members of the CNBC Investment Committee debate how to navigate the inflation risks to the rally.

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