👋 ICYMI
Kevin Warsh hiked. On Wednesday at 2:00 PM Eastern, the Federal Reserve raised its benchmark interest rate by 25 basis points to a target range of 3.75% to 4.00% — its first rate increase since July 2023 and the end of an easing cycle that had defined markets for over two years. The vote was unanimous, 12–0.
"The plain fact is that inflation is too high, and has been for too long," Warsh said in a press conference that lasted just 18 minutes. "This summer's inflation readings do not tell me that underlying inflation has meaningfully improved".
The dot plot was even more hawkish than the hike itself. Sixteen of 18 officials project at least one more rate increase this year. Four project two more. Not a single dot pointed to a cut in 2026 — a dramatic shift from June, when nine officials saw a hike and one still saw a cut. Markets now price a 90% chance of another hike by December and a 55% chance it comes as soon as October.
The market's reaction told the week's story in three acts. Wednesday: the S&P 500 and Dow plummeted as the dot plot revealed the depth of hawkish conviction. Thursday: a massive rebound as investors looked past the hike and bought AI and tech — the S&P 500 and Nasdaq both surged. Friday: a mixed close on triple witching day as Treasury yields pushed back toward 5% and the Bank of Japan hiked rates to a 31-year high.
The 10-year Treasury yield broke above 5% this week — the highest level since July 2007 — before settling just below that threshold on Friday. The 2-year yield surged following Warsh's remarks.
For the week: the Nasdaq was the only major index to finish positive, gaining 0.7% to 26,523 — carried by chipmakers Broadcom $AVGO ( ▲ 2.97% ), Micron $MU ( ▲ 3.92% ) and AI names that investors see as transcending the rate environment. The S&P 500 slipped 0.1% to 7,650.50. The Dow fell 1.7% to 51,683 — its worst week since March. The Russell 2000 lost 1.5%.
Beneath the surface, the damage was wider. Consumer discretionary is now down six straight weeks. Industrials, consumer staples, and real estate are each down five straight weeks. Transports have fallen five straight weeks. Small caps have been in decline for over a month. The rally has narrowed to one theme: AI.
🔁 Market Movers
🏛 The Fed Hikes 12–0: "Inflation Is Too High and Has Been for Too Long"
The quarter-point increase to 3.75–4.00% was unanimous — a stark contrast to July's 9–3 hold. The dot plot revealed that not a single official now sees a cut in 2026. PCE inflation is projected at 3.7% this year, falling to 2.3% in 2027. Warsh emphasised that the economy "appears to be strengthening" and described financial conditions as not restrictive — signalling he sees room for further tightening. "I would be hard-pressed to describe broad financial conditions as restrictive," he said. This isn't a one-and-done hike. It's the start of a new phase.
📈 10-Year Yield Breaks 5% — Highest Since 2007
The benchmark 10-year Treasury yield crossed 5% for the first time since July 2007. The 30-year pushed even higher. At these levels, mortgage rates, corporate borrowing costs, and equity discount rates are all under pressure. "Some uncertainty was removed this week when the Fed hiked rates," said Certuity CIO Scott Welch — but that "certainty" is that rates are going higher, not lower.
📉 Wednesday Selloff → Thursday Rebound: The AI Immune System
The S&P 500 and Dow plummeted Wednesday after the hike and hawkish dot plot. But Thursday brought a massive rebound — technology surged, carrying the S&P 500 back above its 50-day moving average. The message: investors believe AI-powered earnings growth can overpower higher rates. Whether that's right will be tested in Q3 earnings season, which begins in two weeks.
📊 Nasdaq Positive, Everything Else Negative — Breadth Collapses
The Nasdaq gained 0.7% for the week. The Dow lost 1.7%. The Russell 2000 fell 1.5%. Financials posted their biggest weekly loss since March as banks and asset managers fell on the hike. The S&P 500 is being held up by a shrinking number of names — chips and AI — while the rest of the market deteriorates.
🇯🇵 Bank of Japan Hikes — Global Tightening Synchronized
The Bank of Japan raised rates to a 31-year high on Friday, joining the Fed in a rare period of coordinated global tightening. The move briefly pushed yields higher worldwide and pressured equities into the close. With the Fed, BOJ, and ECB all in tightening or holding stances, global liquidity conditions are the most restrictive since 2007.
👀 Signals I'm Watching
📊 90% Odds of Another Hike by December — The Cycle Has Restarted
Markets now price a 90% probability of a second hike by December's meeting, with 55% odds it comes as early as October. If the October 28 meeting delivers another quarter-point increase, the fed funds rate would reach 4.00–4.25% — the highest since January 2026, before the easing cycle even began. The rate path the market priced at the start of the year (three cuts) has completely reversed into two hikes. That repricing has enormous implications for housing, consumer credit, and corporate borrowing costs.
🤖 The Market Has Decided: AI Earns, Everything Else Doesn't
Thursday's rebound was the clearest signal yet that institutional capital views AI as rate-proof. While financials, industrials, consumer discretionary, and small caps all fell on the hike, tech surged 2.25%. The market is making a structural bet that AI-driven earnings growth (25%+) can outpace the drag from higher discount rates. That bet has been correct for most of 2026. But with the 10-year above 5%, the math gets harder — every additional basis point of yield compresses the present value of future earnings.
🛢 Oil Near $100 Is the Inflation Problem That Won't Go Away
Oil climbing back toward $95–$100 on the week is the reason the Fed hiked and the reason it may hike again. The Iran conflict has kept energy costs structurally elevated for seven months. The Fed projected PCE inflation at 3.7% for 2026 — well above its 2% target. Until oil sustainably breaks below $80, the inflation outlook won't improve enough for the Fed to stop.
📉 Six Sectors in Multi-Week Downtrends — The Market Is Splitting
Consumer discretionary: six straight down weeks. Industrials: five. Consumer staples: five. Real estate: five. Transports: five. Materials: four. The only sectors holding up are technology and energy. This is no longer a broad bull market — it's a narrow one. And narrow markets, historically, are fragile ones.
$FPS over the past week
💡 Forgent Power Solutions ($FPS) has been one of my favorite under-the-radar AI infrastructure names lately. The company's momentum is building — and the most recent earnings results confirmed that, sending shares up over 20%.
I first covered $FPS in a deep dive back in July, sharing my thesis and price target with members. Last week, I published an updated deep dive with my revised price target and take on the latest results.
If you'd like to follow along, get full access to my deep dives, and join a community of long-term growth investors where I share my exact portfolio, now is a good time to become a member.
Thank you for your continued support,
George
⚠️ Red Flag to Note
The Most Dangerous Kind of Market: Narrow, Expensive, and Tightening
The S&P 500 is being held near all-time highs by a handful of AI names while six sectors are in sustained downtrends and the Fed is hiking into an economy where consumer sentiment is near historic lows.
Historically, markets that narrow this dramatically — where a shrinking number of stocks carry the index while the majority decline — are in the final phase before a broader correction. The last time breadth was this poor with rates rising simultaneously was late 2018, which preceded a 20% drawdown. This doesn't mean a crash is imminent. AI earnings are real in a way they weren't in 2018. But the combination of record-high yields, narrowing breadth, and a Fed that just hiked for the first time in three years is a setup that demands caution, not complacency.
🔍 Insider Transactions I’m Watching
Ticker | Insider | Action | Value | Why It Matters |
|---|---|---|---|---|
Lachlan Murdoch — Executive Chair & CEO | Buy | ~$10.27M | The Fox Corporation chief purchased 149,934 shares on September 15 — the day before the Fed hiked. A $10M buy by one of the most powerful media executives in the world, heading into the most anticipated rate decision in three years, is the kind of conviction that doesn't require explanation. | |
Michael P. Lyons — President & CEO | Buy | ~$1.02M | The Truist Financial CEO purchased 21,000 shares on September 17 — the day after the Fed hiked and financials posted their worst weekly loss since March. When a bank CEO buys $1M in his own stock the day after a rate hike that's supposed to hurt banks, it tells you he sees the selloff as overdone. | |
Q-GRG VII — Beneficial Owner | Buy | ~$9.99M | The beneficial owner of ChargePoint purchased 1,850,000 shares at $5.40 during the week. A nearly $10M bet on EV charging infrastructure while consumer discretionary is in its sixth consecutive losing week and rates just rose is a contrarian play on structural EV adoption outweighing the macro headwinds. |
📬 Closing Note
The Fed hiked. And the world didn't end. Wednesday's 12–0 vote was supposed to be the event that resolved months of uncertainty. In some ways, it did. We now know the rate is 3.75–4.00%. We know the dot plot projects more hikes. We know Warsh believes inflation is "too high and has been for too long." The uncertainty about whether the Fed would act is gone. But the uncertainty about what comes next is just beginning.
Thursday's rebound proved the AI thesis hasn't broken. Investors bought the dip in tech within 24 hours of the first rate hike in three years. Broadcom gained 3%. Micron gained 4%. The Nasdaq was the only index positive for the week. That's either the market's wisdom or its blindspot — and only Q3 earnings will tell us which.
Stay patient. Stay selective. And let the data guide the story.
Until next Sunday —
