Review & Preview: Time to Hike

Hut, Hut, Hike. The National Football League kicks off its season this week, but Wall Street is gearing up for a different kind of hike.

A hot consumer price inflation report on Friday essentially cemented a quarter-point interest rate increase next week, but stocks actually finished the day higher.

The Dow Jones Industrial Average rose 509 points, or 1%, on Friday. The S&P 500 rose 0.9%. The Nasdaq Composite rose 0.7%.

All three were down on the week. The Dow was the big laggard of the group, marking its worst week since March 20 with a 1.6% drop.

Odds of a quarter-point interest-rate increase at the Federal Open Market Committee’s meeting next week jumped to 86.5% on Friday, up from 72.4% on Thursday.

In that context, the stock market’s Friday bounce back could be a classic case of traders selling into rumors of a rate hike, then buying on some news that takes uncertainty off the table.

“We’ve seen this trend multiple times where macro factors will induce a selloff, but it’s typically bought back pretty quickly when investors realize that they’re able to buy the market on the dip,” says Will Rhind, CEO of GraniteShares, told my colleague Naomi Buchanan.

But what if a rate hike is actually a good thing for the market? My colleague Alex Rosenberg argues that an interest rate increase could help Fed Chairman Kevin Warsh show he’s serious about taming inflation, which could ease some of the pressure in the bond market. Alex writes.

It’s a confusing dynamic. Stocks are generally opposed to higher rates, which can slow the economy and make bonds relatively more attractive as compared with equities. But above all else, they value stability. When expectations of a Fed hike start rising, that tends to take a bite out of the market, and we probably saw that dynamic earlier in the week. Yet at this point, a widely predicted (and clearly warranted) Fed hike would bolster stability, quiet the fears of runaway inflation, and allow stocks to focus on what really matters: The AI buildout and the earnings bonanza it continues to precipitate. And the more investors focus on that, the better the market will do.

Confusing or not, it would make perfect sense for markets to throw a curveball. Sorry, wrong sport.

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Company

Last

Chg

Chg%

Dow Jones Industrial Average

52,573.29

509.19

0.98%

S&P 500 Index

7,656.98

65.28

0.86%

NASDAQ Composite Index

26,333.04

251.31

0.96%

Market Data as of

The Hot Stock: Hewlett Packard Enterprise +12.4%
The Biggest Loser: Seagate Technology -3.7%

Best Sector: Communication Services +1.4%
Worst Sector: Utilities -0.3%

Created with Highcharts 9.0.1Friday, Sept. 11Index performanceSource: FactSetAs of Sept. 11, 3:55 p.m. ET

Created with Highcharts 9.0.1Sept. 1100.20.40.60.81.01.21.4%Dow industrialsNasdaq CompositeS&P 500

This Weekend’s Magazine

Illustration: Illustration by Emmanuel Polanco

The Calendar

Rising bond yields put more pressure on Federal Reserve Chairman Kevin Warsh ahead of the Federal Open Market Committee meeting next Tuesday and Wednesday. Wall Street expects a rate hike, and if the FOMC fails to deliver, it could be more bad news for longer-dated bonds.

A rate hike would establish the central bank’s inflation-fighting credentials, which could lower yields at the long end of the Treasury curve, even though short-term rates would rise. Standing pat once again, after Warsh said that “price stability is not self-executing, nor is inflation necessarily mean-reverting,” could risk a bond-market revolt. If bond operators don’t think the FOMC is serious about tackling inflation that has run above the Federal Reserve’s 2% target for more than five years, Treasury yields could become unanchored.

—Dan Lam

What We’re Reading Today

• Barron’s Exclusive: Betting on the NFL With Kalshi? You Might Be Trading Against FanDuel.
• Reflecting on 9/11: ‘We Witnessed Some of the Very Best Humanity Has to Offer’
• Sweetgreen Stock Jumps After CDC Declares End to Cyclospora Outbreak
• The New Chip Rally Comes With a Warning Attached
• And this week’s cover story: Growth Without AI: 8 Stock Picks

Join Barron’s Live at noon ET on Monday. Barron’s Senior Managing Editor Lauren R. Rublin and Investor Circle Newsletter Editor Josh Schafer will be joined by Roger Hallam, global head of rates in Vanguard’s Fixed Income Group to discuss the Federal Reserve’s next move and more.

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