Freedom Broker called the Fed rate hike positive for the market

The U.S. Federal Reserve’s rate hike proved moderately positive for U.S. equities, according to Freedom Broker analysts. Although the regulator tightened monetary policy for the first time since 2023, its forecast implies a less aggressive rate path than what the market is currently pricing in. The Fed raised the rate by 25 basis points to a range of 3.75–4%. The decision was unanimous. 

The Fed’s forecast proved more dovish than market expectations

The median projection of participants in the Federal Open Market Committee implies only one additional rate hike through the end of 2026 and keeping it unchanged in 2027.

The futures market is pricing in a more hawkish scenario: one more step is almost fully priced in by December, and a second mostly by January. By mid-2027, traders expect the rate in the 4.50–4.75% range, about 50 basis points above the path indicated by the Fed.

“The regulator confirmed the need for tightening, but has not yet supported expectations of a full-fledged cycle with multiple hikes,” Freedom Broker analysts note.

Yields did not send a new alarming signal

After Fed Chair Kevin Warsh’s press conference, the yield on 10-year Treasuries rose from 4.94% to 5.02%, while two-year notes hit their highest level since mid-2024. At the same time, the yield on 30-year bonds was almost unchanged.

The restrained reaction in long-dated securities is important for the stock market. It shows that investors do not yet expect a prolonged intensification of inflationary pressure or a significant deterioration in long-term economic prospects.

According to Freedom Broker, the most favorable scenario for the S&P 500 and Nasdaq would be the stabilization of 10-year yields around 5% or their decline. In that case, the market can treat the rate hike as a stress test already passed and reduce the risk premium for further tightening.

Stocks may shift to a recovery

Analysts assess the balance of risks for the U.S. market as positive, although volatility will remain elevated. After several sessions of pressure from rates and a sell-off in the artificial intelligence segment, investors’ attention may return to corporate profit growth and strong demand for computing infrastructure.

Strong consumption data support this scenario. U.S. retail sales in August rose 1.2% month over month versus a consensus forecast of 0.8%. The retail sales control group, the data from which are used in calculating GDP, gained 1.4% versus the expected 0.4%.

In the previous trading session, the technology sector finished better than the market. NVIDIA shares rose 0.82%, Intel gained 4.03%, and AMD added 1.65%. Analysts believe this shows that the AI theme remains resilient to monetary-policy tightening.

Real estate remains vulnerable

The main risk remains a further rise in Treasury yields. The combination of resilient consumer demand and the Fed’s tough stance on inflation may keep market rates high and limit the re-rating of equities.

Real estate and homebuilding remain the most sensitive to this factor. Mortgage rates around 7% continue to constrain housing affordability, and the NAHB index of U.S. homebuilder sentiment in September fell by three points to its lowest level in a year.

In the previous session, the S&P 500 lost 0.44%, the Dow Jones fell 1.21%, and the Russell 2000 slipped 0.40%, while the Nasdaq 100 was little changed. The VIX volatility index remained below 18 points, which, according to Freedom Broker, indicates a calm market reaction to the first rate hike in three years.

Not an individual investment recommendation.