US equities opened sharply higher on Thursday, recovering from Wednesday's selloff as investors digested the Federal Reserve's first interest rate increase in three years. The Dow Jones Industrial Average climbed 311 points, the S&P 500 advanced 1.2%, and the Nasdaq Composite jumped 1.59%, with technology stocks leading the charge.
Fed's hawkish hike and initial market reaction
On Wednesday, the Fed raised its benchmark rate by 25 basis points to a target range of 3.75% to 4.00%, a unanimous decision. Chair Kevin Warsh signaled a hawkish stance, noting inflation remains "too high" and financial conditions are not yet restrictive enough. The updated dot plot revealed that 16 of 18 policymakers expect at least one more quarter-point hike by the end of 2026.
Stocks initially fell on the news, with the Dow dropping 1.21%, the S&P 500 sliding 0.45%, and the Nasdaq slipping 0.01%. Financial services stocks were particularly pressured.
Why markets are rebounding
With the rate decision now in the rearview mirror, investors returned to favored themes, especially technology. Alphabet and Meta each rose more than 1%, while neocloud firms like Nebius and IREN also gained at the open. Progress on a bill to regulate data center power costs added further support to tech names.
Bond markets calmed as well. The 2-year Treasury yield, most sensitive to near-term Fed policy, fell 1 basis point to 4.72% after hitting its highest level since 2024 the prior session. The 10-year and 30-year yields each eased about 2 basis points.
Oil prices dropped sharply following reports that US officials held secret talks in Oman with Yemen's Iran-aligned Houthi rebels, raising hopes for reduced Middle East tensions that have kept energy prices elevated for months.
Not all stocks are celebrating
Fluence Energy tumbled 19% after cutting its revenue forecast for fiscal year 2026. Despite Thursday's gains, the S&P 500 remains down 1.7% for the month, underscoring that the back half of September has historically been a weak period for equities.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, said Warsh "threaded the needle very well" with Wednesday's decision, but cautioned that inflation has stayed above the Fed's target for more than five years, a factor likely to keep policy debates alive.
The rate hike has also put Warsh at odds with President Donald Trump, who said in a social media post that rates should be at 1% or lower, later telling reporters current rates were "not appropriate." That tension between the White House and the Fed is likely to remain a recurring theme as markets anticipate further tightening later this year.
For investors, the rebound offers a chance to reassess positions. As AI server demand forecasts rise, tech may continue to lead, but the broader market's vulnerability to rate expectations remains. Meanwhile, crypto and traditional markets are converging, and subscriber growth is lifting some stocks. However, lockup overhangs can still pressure shares.
This article is for informational purposes only and does not constitute financial advice.
