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Navigating the Market: Inflation, Yields, & the Fed
Key Takeaways
A Fed Rate hike is highly anticipated amid high yields and inflation.
Oil prices, AI regulatory drama, and Crypto regulatory concerns are hurdles for the market.
Expect elevated volatility post-FOMC.
U.S. stocks experienced pressure Tuesday as a spike in bond yields and rising crude oil prices weighed on market sentiment ahead of the Federal Reserve’s interest rate decision. The 10-year U.S. Treasury yield surged past 5.0%—reaching its highest level since 2007. Pushed higher by heavy issuance and stubborn inflation data, elevated yields continue to compress equity valuations and raise borrowing costs across the economy. Outside of energy, it was a fairly quiet session as investors brace for Wednesday’s FOMC.
FOMC Meeting Looms
Wednesday’s Federal Open Market Committee (FOMC) meeting will be a pivotal moment for the market. First, inflation pressures are weighing on markets as prices react to rampant government spending, import tax adjustments, and soaring energy prices from the U.S-Iran conflict. Currently, the Personal Consumption Expenditures Index (PCE), the Fed’s preferred inflation gauge, is running at ~3.3%, well above the Fed’s 2% target.
Will the Fed Hike Interest Rates on Wednesday?
One of President Trump’s biggest qualms with former Fed Chairman Jerome Powell was that he moved slowly to cut interest rates. Now, recently appointed Fed Chair Kevin Warsh faces a tough decision: hike interest rates to quell inflation or defy President Trump’s wishes.
Heading into Wednesday’s FOMC, bettors seem very certain that a 25bps hike will occur. According to the Kalshi betting market, there is an 87% chance of a rate hike in September.
Image Source: Kalshi
Meanwhile, since 2008, the Fed has hiked rates whenever the probability of a hike exceeds 90% on the CME FedWatch tool. The odds of a hike are currently at 92.3%.
How Will Markets React to a Rate Hike?
Markets typically react adversely to rate hikes as higher interest rates increase borrowing costs, make bonds more attractive, and reduce future corporate earnings. However, according to Bluekurtic Market Insights, the median S&P 500 performance is less damaging when stocks are within 5% of record highs, as they are now.
Image Source: Bluekurtic Market Insights
Additionally, Wall Street investors may be pleasantly surprised by the market’s post-hike reaction this time around, as a rate hike would alleviate some of the upward pressure on longer-dated Treasury Yields. Also, with a rate hike highly likely, the market may react in a classic “Sell the rumor, buy the news” fashion.
Watch the Correlation Between Oil and Stocks
Soaring energy prices have acted as the proverbial “pebble in the shoe” for equity bulls. For instance, when the United States Oil Fund ((USO - Free Report) ) jumped 5% on September 1st, the Nasdaq 100 Index ETF ((QQQ - Free Report) ) slid 1.27%. However, Tuesday, oil jumped more than 5% intraday, but stocks were relatively muted – signaling a subtle change of character.
Crude oil futures are now at a key inflection point. Crude is running into potential resistance as it approaches the early 2026 highs and the 0.786% Fibonacci extension.
Image Source: TradingView
Circle, Bitcoin Fall As Clarity Act Fails to Pass Senate
Tuesday, crypto names fell late in the session after the Clarity Act failed to pass the Senate. Despite the short-term failure, the Clarity Act, which has been going through Washington for 4 years, is closer to passing than ever. Nevertheless, the iShares Bitcoin ETF Trust ((IBIT - Free Report) ) and Circle Group ((CRCL - Free Report) ) found buyers after the initial flush and were supported at the 200-day moving average.
Image Source: TradingView
AI Stocks Wrestle Safety Fears
Additionally, AI-related stocks like Micron ((MU - Free Report) ), SanDisk ((SNDK - Free Report) ), and Nebius Group ((NBIS - Free Report) ) have underperformed recently after the CEO’s of OpenAI and Anthropic called for more stringent regulation and OpenAI paused its IPO plans. However, David Sacks, former “AI Czar” for the Trump Administration, made an astute observation:
“Dario (Anthropic CEO) has written that we need to “pace the frontier,” and Sam has agreed. People may be surprised by my response: go ahead. You guys are the frontier. By any reasonable metric – market share, revenue growth, model capability – the two of you have a duopoly on frontier intelligence.”
Meanwhile, President Trump doubled down on the fact that he does not plan to pause the AI buildout or regulate it further currently. In other words, growing evidence suggests that the viral “doomer” tweet" is engineered panic aimed at achieving regulatory capture, not genuine concern.
Bottom Line
Over the past few weeks, the market has been extremely choppy, frustrating, and illiquid. The good news is that Wednesday’s FOMC meeting should bring volatility back in a big way and finally give the market some direction. Make sure that your position sizing allows for wider swings through the rest of the week. Watch the $700 area for QQQ (open gap from early August & round #), and the fib extension at $109 on crude oil futures (0.786 Fib & old highs).
View the Zacks #1 Rank List
Image: Bigstock
Navigating the Market: Inflation, Yields, & the Fed
Key Takeaways
U.S. stocks experienced pressure Tuesday as a spike in bond yields and rising crude oil prices weighed on market sentiment ahead of the Federal Reserve’s interest rate decision. The 10-year U.S. Treasury yield surged past 5.0%—reaching its highest level since 2007. Pushed higher by heavy issuance and stubborn inflation data, elevated yields continue to compress equity valuations and raise borrowing costs across the economy. Outside of energy, it was a fairly quiet session as investors brace for Wednesday’s FOMC.
FOMC Meeting Looms
Wednesday’s Federal Open Market Committee (FOMC) meeting will be a pivotal moment for the market. First, inflation pressures are weighing on markets as prices react to rampant government spending, import tax adjustments, and soaring energy prices from the U.S-Iran conflict. Currently, the Personal Consumption Expenditures Index (PCE), the Fed’s preferred inflation gauge, is running at ~3.3%, well above the Fed’s 2% target.
Will the Fed Hike Interest Rates on Wednesday?
One of President Trump’s biggest qualms with former Fed Chairman Jerome Powell was that he moved slowly to cut interest rates. Now, recently appointed Fed Chair Kevin Warsh faces a tough decision: hike interest rates to quell inflation or defy President Trump’s wishes.
Heading into Wednesday’s FOMC, bettors seem very certain that a 25bps hike will occur. According to the Kalshi betting market, there is an 87% chance of a rate hike in September.
Image Source: Kalshi
Meanwhile, since 2008, the Fed has hiked rates whenever the probability of a hike exceeds 90% on the CME FedWatch tool. The odds of a hike are currently at 92.3%.
How Will Markets React to a Rate Hike?
Markets typically react adversely to rate hikes as higher interest rates increase borrowing costs, make bonds more attractive, and reduce future corporate earnings. However, according to Bluekurtic Market Insights, the median S&P 500 performance is less damaging when stocks are within 5% of record highs, as they are now.
Image Source: Bluekurtic Market Insights
Additionally, Wall Street investors may be pleasantly surprised by the market’s post-hike reaction this time around, as a rate hike would alleviate some of the upward pressure on longer-dated Treasury Yields. Also, with a rate hike highly likely, the market may react in a classic “Sell the rumor, buy the news” fashion.
Watch the Correlation Between Oil and Stocks
Soaring energy prices have acted as the proverbial “pebble in the shoe” for equity bulls. For instance, when the United States Oil Fund ((USO - Free Report) ) jumped 5% on September 1st, the Nasdaq 100 Index ETF ((QQQ - Free Report) ) slid 1.27%. However, Tuesday, oil jumped more than 5% intraday, but stocks were relatively muted – signaling a subtle change of character.
Crude oil futures are now at a key inflection point. Crude is running into potential resistance as it approaches the early 2026 highs and the 0.786% Fibonacci extension.
Image Source: TradingView
Circle, Bitcoin Fall As Clarity Act Fails to Pass Senate
The Digital Asset Market Clarity Act, better known as the Clarity Act, is a proposed federal bill that would establish a broad regulatory framework for digital assets and cryptocurrencies in the United States. For years, crypto and digital asset firms have been confused about which regulatory agency has jurisdiction over the industry. This murky regulatory environment leads to contradictions among regulators and litigation against digital asset firms trying to navigate these murky waters. The proposed bill seeks to set clear boundaries between the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Tuesday, crypto names fell late in the session after the Clarity Act failed to pass the Senate. Despite the short-term failure, the Clarity Act, which has been going through Washington for 4 years, is closer to passing than ever. Nevertheless, the iShares Bitcoin ETF Trust ((IBIT - Free Report) ) and Circle Group ((CRCL - Free Report) ) found buyers after the initial flush and were supported at the 200-day moving average.
Image Source: TradingView
AI Stocks Wrestle Safety Fears
Additionally, AI-related stocks like Micron ((MU - Free Report) ), SanDisk ((SNDK - Free Report) ), and Nebius Group ((NBIS - Free Report) ) have underperformed recently after the CEO’s of OpenAI and Anthropic called for more stringent regulation and OpenAI paused its IPO plans. However, David Sacks, former “AI Czar” for the Trump Administration, made an astute observation:
“Dario (Anthropic CEO) has written that we need to “pace the frontier,” and Sam has agreed. People may be surprised by my response: go ahead. You guys are the frontier. By any reasonable metric – market share, revenue growth, model capability – the two of you have a duopoly on frontier intelligence.”
Meanwhile, President Trump doubled down on the fact that he does not plan to pause the AI buildout or regulate it further currently. In other words, growing evidence suggests that the viral “doomer” tweet" is engineered panic aimed at achieving regulatory capture, not genuine concern.
Bottom Line
Over the past few weeks, the market has been extremely choppy, frustrating, and illiquid. The good news is that Wednesday’s FOMC meeting should bring volatility back in a big way and finally give the market some direction. Make sure that your position sizing allows for wider swings through the rest of the week. Watch the $700 area for QQQ (open gap from early August & round #), and the fib extension at $109 on crude oil futures (0.786 Fib & old highs).