Written by: Trend Research

The Federal Reserve raised interest rates again after more than three years, the U.S. stock market weakened after the announcement, the Dow Jones fell over 600 points, while the NASDAQ almost closed flat. Last night, the market showed clear differentiation, long-term U.S. Treasury yields rose back to high levels, and the performance of the seven giants was mixed, with optical communications and some chip stocks rising against the trend; on the other hand, oil prices ended their consecutive rise, and the energy sector led the decline. The interest rate hike has taken place, and the market now has to digest how many more will occur this year, and how long high rates will persist. Whether AI hardware can continue to withstand the pressure of rising rates will also become an important observation clue for short-term technology stocks.

Dow down 631 points, NASDAQ nearly flat

The Dow fell 1.21% to 51,461.78 points, the S&P 500 fell 0.44% to 7,552.14 points, and the NASDAQ fell 0.01% to 25,978.43 points. VIX rose 6.9% to 18.38.

The Philadelphia semiconductor index rose 0.63%. Among the seven giants, four rose and three fell, NVIDIA rose 0.82%, Meta rose 0.46%, Tesla rose 0.42%, and Apple rose 0.32%; Microsoft fell 1.37%, Amazon fell 0.99%, and Google fell 0.61%. The NASDAQ Golden Dragon China Index fell 0.55% to 5,734.17 points.

The bond market was more volatile. The yield on 2-year U.S. Treasury bonds rose to 4.738%, and the 10-year yield rose to 5.00%, while the U.S. dollar index rose 0.63%.

WTI crude oil fell 3.2% to $102.43, and Brent crude oil fell 2.69% to $105.83. Spot gold fell 0.69% to $4,263.19. Bitcoin is around $76,300, and Ethereum is about $2,420.

Federal Reserve's first interest rate hike, dot plot continues to lean hawkish

The Federal Reserve raised the federal funds rate by 25 basis points to 3.75% to 4.00%, with a unanimous vote, marking the first rate hike since 2023.

In the latest economic forecasts, 16 of the 18 officials believe at least one more rate hike is necessary this year, with the year-end policy rate median rising to 4.00% to 4.25%. Waller emphasized inflationary pressures at the press conference, stating that recent economic, employment, and investment performances are stronger than during the last meeting.

The retail sales data for August, released on the same day, also showed strength, rising 1.2% month-over-month, with July's figure revised down to a 0.5% decline; the control group sales used for GDP calculation rose 1.4%.

The resilience in consumer spending leaves room for the Federal Reserve to continue tightening. Following the decision announcement, U.S. Treasury yields moved upward in sync, and the focus of trading will shift to how many more rate hikes remain this year and how long high rates will last.

Optical communications lead the way, AI hardware continues to be active

Optical communications were the strongest part of the tech stocks last night. Lumentum rose nearly 10%, Coherent rose nearly 7%, and the previously adjusted AI interconnection sector saw a clear rebound.

Chip stocks also had industry catalysts. Intel rose 4%, with 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 rates rising again are not friendly to high-valuation tech stocks, but high-speed interconnects, storage, and domestic chip manufacturing still have specific orders and industrial events supporting them.

Oil prices fall, energy sector leads the declines

Crude oil ended its prior consecutive rise. Saudi Arabia increased supplies through Oman, easing some supply pressures in the Middle East, causing the energy sector to decline by about 3% on the day, making it the weakest part of the S&P 500.

Chemical companies Chevron fell 2.9%, ExxonMobil fell 3.5%, and ConocoPhillips and Devon Energy both fell over 5%.

Although oil prices have fallen, they remain above $100 per barrel. Whether energy prices can continue to cool off will affect the pace of inflation data declines and will also enter the Federal Reserve’s subsequent policy considerations.

Today's focus

Today we will first look at U.S. employment and real estate data. Initial unemployment claims, new housing starts, building permits, and the Philadelphia Fed manufacturing index will be released before the U.S. stock market opens, followed by existing home sales data later.

With long-term rates already at high levels, if real estate and employment data deviate significantly, the bond market may react first.

In tech stocks, we continue to watch optical communications and semiconductors. Last night, both directions strengthened against the trend, and today we will observe whether this wave of strength can continue.