Wall St rises as lower oil prices offset Fed rate hike

The major US stock indices jumped on Thursday as a pullback in oil prices boosted sentiment, with the Federal Reserve’s first rate hike under chair Kevin Warsh reassuring investors of the central bank’s commitment to tackling inflation.

The policy decision addressed a chronic source of anxiety, allowing investors to return to favourites. Technology shares gained with Nvidia and Amazon rising nearly 2% each.

The gains will be crucial for investors in the second half of September, historically a weak month for equities. The benchmark S&P 500 has lost 1.7% so far this month.

“Although the argument that energy prices are elevated because of a temporary disruption in the Middle East may be true, inflation has been above target for over five years,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Before midday, the Dow Jones industrial average rose 316.08 points, or 0.59%, to 51,763.46, the S&P 500 added 71.28 points, or 0.94%, to 7,623.09, and the Nasdaq Composite gained 321.49 points, or 1.25%, to 26,302.28.

The CBOE Volatility Index, Wall Street’s fear gauge, fell 2.01 points to 15.70.

“I think the Fed is likely to maintain a light touch going forward. It doesn’t feel like we’ve entered the type of rate-hiking cycle we saw in 2022 and 2023,” said Kim Forrest, chief investment officer at Bokeh Capital Partners.

However, the Fed warned more hikes may be needed in the coming months to control prices. Uncertainty over how high interest rates could ultimately rise is likely to keep stocks and bonds volatile in the weeks ahead.

Traders see a near 49% chance of another increase when the central bank meets next, in October, compared with about 44% a day ago, according to CME’s FedWatch.

“History is clear that once the Fed begins raising rates, they do it multiple times; but the pattern is less clear about whether they will raise rates at consecutive meetings or leave rates unchanged at some of the meetings in between,” Zaccarelli said.

The yield on the benchmark 10-year US Treasury also slipped, taking some pressure off equities. High yields on risk-free U.S. Treasuries typically dampen the appeal of stocks.

All 11 major S&P 500 sectors were trading higher, with utilities leading gains with a 1% jump.

Meanwhile, oil prices dropped for the second consecutive day, with Brent crude futures down nearly 3% to $102.90. US West Texas Intermediate crude futures fell 1.8% to $100.62.

Crypto-linked stocks rose after the US securities regulator unveiled a five-year exemption for tokenised stock trading. Robinhood and Circle Internet Group rose about 3.5% each, while Coinbase advanced 1.2%.