Fed hikes to 3.75%-4%, and 16 of 18 officials see another
The Fed raised rates for the first time since 2023. The Dow fund fell 1.15% while QQQ held flat, and banks took the worst of it.
The Federal Reserve raised interest rates yesterday for the first time since 2023, and said it expects to do it again. The reaction was not a broad selloff so much as a sorting: the Dow fell more than 600 points while the Nasdaq Composite finished essentially unchanged.
The Fed hiked a quarter point and pointed at another
The FOMC raised its target range for the federal funds rate to 3.75%–4.00%, up from 3.50%–3.75%. It was the first increase since 2023 and the first move of Chair Kevin Warsh’s tenure, and the committee approved it unanimously.
The projections mattered more than the decision, which had been widely anticipated. Of the 18 participants who submitted a dot — Warsh has chosen not to submit one since taking the job — 16 expect another increase this year, and four of those see room for two more.
Warsh was blunt about why. “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” he told reporters. “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Today, the FOMC decided that this standard has not been satisfied.”
The bond market took the hawkish half seriously at the front end. The 2-year Treasury yield rose more than 7 basis points to 4.738%, while the 10-year rose about 2 basis points to 5.016%, its highest since 2023. Short rates moving nearly four times as much as long rates is a flattening curve — the market accepting that policy will be tighter for a while without marking up its view of longer-run growth or inflation to match.
A rotation, not a selloff
The headline indexes disagreed with each other by an unusual margin. The Dow Jones Industrial Average fell 1.21%, the S&P 500 0.45%, and the Nasdaq Composite 0.01% — effectively flat. In our feed the same split showed up in the funds: DIA lost 1.15% to $515.22, SPY 0.44% to $754.05, IWM 0.43% to $283.92, while QQQ gained 0.03% to $704.72.
Breadth was worse than the S&P’s number suggests. 69 of the 100 stocks and funds we track fell and 31 rose. The index held up because what rose was heavy and what fell was numerous.
There was also a real intraday reversal worth noting. SPY opened at $759.50, reached $761.67, then traded down to $749.60 before closing at $754.05. The selling came after the 2 p.m. decision, not before it.
Semiconductors and AI infrastructure were the offset. Intel (INTC) rose 4.03% to $101.05 on 119.1 million shares, the heaviest volume in our feed by a wide margin. Snowflake (SNOW) gained 2.49%, Oracle (ORCL) 2.00% to $143.16, Advanced Micro Devices (AMD) 1.65% to $512.50 and Nvidia (NVDA) 0.82% to $213.90. XLK, the technology fund, finished up 0.10%.
Gold tells you how sharp the repricing was even though it ended quietly. GLD closed down 0.61% at $391.74, but it opened at $398.91 and ran to $400.60 before falling to $388.39 — a high-to-low range of more than 3% on a day it finished less than a percent lower.
Banks took the worst of it, which is not the textbook response
Higher short rates are conventionally good for bank margins. That is not what traded. XLF, the financials fund, fell 1.62% to $55.93, and the losses got bigger the further you moved from plain deposit-taking: Goldman Sachs (GS) fell 3.96% to $937.98, American Express (AXP) 3.70% to $312.43, Wells Fargo (WFC) 2.98%, Bank of America (BAC) 2.72%, Citigroup (C) 2.36% and Morgan Stanley (MS) 1.87%. JPMorgan (JPM) got off lightest at 1.01%.
Two readings fit. A flatter curve compresses the spread banks earn between short funding and long lending, so the 2s10s move works against them directly. And the names that fell hardest are the ones levered to activity rather than to spread — Goldman to capital markets, American Express to consumer credit and spending. That is the market pricing the cost of tighter policy rather than its benefit.
The risk-appetite proxies went with them, harder. Robinhood (HOOD) fell 5.46% to $104.42 and Coinbase (COIN) 4.42% to $164.51, extending Tuesday’s decline. Roblox (RBLX) was the single worst name in our feed at 5.59%.
Energy was the weakest sector outright, with XLE down 2.88% to $64.03, Exxon Mobil (XOM) 3.54% to $163.32 and Chevron (CVX) 2.86% — giving back a good part of Tuesday’s rally. Rate-sensitive income names went too: Verizon (VZ) fell 3.28% and AT&T (T) 3.22%. Long bonds themselves were the exception that proves the flattening — TLT rose 0.21%.
Lennar showed what a 5% 10-year does to housing
Lennar (LEN) reported its third quarter after the close, and it is the cleanest read available on how the rate move is landing in the real economy.
Net earnings fell to $284 million, or $1.19 per diluted share, from $591 million and $2.29 a year earlier. Total revenue declined to $8.0 billion from $8.8 billion. New orders fell 9% to 20,879 homes and deliveries 3% to 20,840. The average sales price fell 3% to $372,000, and the gross margin on home sales compressed to 15.8% from 17.5%. Management cut full-year delivery guidance to 80,000–81,000 homes from 82,000–83,000.
Falling prices, falling volumes and a thinner margin at the same time is the signature of a builder buying demand with incentives. Mortgage rates track the 10-year, and the 10-year just closed above 5%. Lennar’s management call is at 11:00 a.m. ET today, three hours after the government publishes its own housing numbers.
Overnight: Asia lower, Europe higher, futures up
Asia traded the hike as expected. Hong Kong’s Hang Seng fell 0.73% and mainland China’s CSI 300 lost 0.36%.
Europe went the other way in early trading, with the pan-European Stoxx 600 up 0.7% and London’s FTSE 100 up 0.8%, most sectors higher. The read there is that Warsh’s willingness to be unpopular reassured more than the hike itself unsettled.
US futures pointed modestly higher into the open: Dow futures up about 0.2%, S&P 500 futures 0.3% and Nasdaq 100 futures 0.5%. That is consistent with what our own after-hours data showed once the dust settled — SPY changed hands at $757.38 after the 4 p.m. close against a $754.07 official close, QQQ at $709.46 against $704.75, and Intel at $102.71 against $101.02.
What to watch today
- Initial jobless claims, 8:30 a.m. ET, the first labour reading since the Fed said policy is too loose.
- Housing starts and building permits, 8:30 a.m. ET, from the Census Bureau’s New Residential Construction report — against Lennar’s 9% order decline.
- The Philadelphia Fed manufacturing survey, 8:30 a.m. ET.
- The NAR pending home sales index, 10:00 a.m. ET, which measures signed contracts rather than closings.
- Lennar’s earnings call at 11:00 a.m. ET, for what management says about incentives and margin.
- Bank stocks at the 9:30 a.m. ET open, after XLF fell 1.62% and Goldman Sachs 3.96%.
- The 2-year and 10-year Treasury yields, at 4.738% and 5.016% after the decision.
Not financial advice. iTrading Buddy summarizes publicly available market data and news; every figure above is sourced from the reporting available before the US open on the date shown. Verify anything you act on.