Global equities rally as lower oil, falling yields offset Fed's first rate hike in three years

World stocks rebounded strongly on Thursday, snapping a recent slide, as investors welcomed the Federal Reserve's unanimous rate hike and cheered a second consecutive day of lower oil prices, according to multiple reports.

All three major U.S. stock indexes closed sharply higher, with the tech-heavy Nasdaq outperforming. The Dow Jones Industrial Average rose 317.95 points, or 0.62%, to 51,779.85. The S&P 500 gained 85.93 points, or 1.14%, to 7,637.74. The Nasdaq Composite advanced 439.87 points, or 1.69%, to 26,418.30.

"We're seeing interest in the areas of the market that have been hit hard in anticipation of this Fed rate hike," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. "And people sort of stepping in, doing a little bit of buying on the pullback."

The pan-European Stoxx 600 rose 0.9% to 642.6 points, with most regional markets advancing. London's FTSE 100 climbed 1.2%, its biggest one-day gain in over two months, as metal mining shares led the charge.

**Oil and yields drive the move**

Crude prices fell, touching a one-week low, after reports that Saudi Arabia was offering additional cargoes through Oman calmed supply disruption fears. Separately, reports indicated Saudi Arabia could restore within days about half of crude shipments disrupted by the stoppage of its East-West pipeline to the Red Sea, after the conduit was shut following a Houthi attack. Brent crude futures settled down 1% at $104.82 per barrel, though prices remained above $100.

Energy prices had soared since the onset of the US-Israeli war against Iran, feeding global inflationary pressures.

U.S. Treasury yields fell on Thursday as investors assessed the Fed's decision and signals of further tightening ahead. The 10-year yield stayed below 5%. The Bank of England's decision to pause bond sales for six months and halt sales of long-dated gilts entirely also contributed to a global bond rebound, with the 30-year gilt yield tumbling 12 basis points.

"The market is a bit relieved at the Fed's coherence in that they all voted in the same way," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. "Fed Chair Warsh re-emphasised the Fed's independence."

**Fed hike and hawkish signals**

On Wednesday, Fed policymakers voted unanimously to raise the federal funds target rate for the first time since July 2023, defying President Donald Trump's calls for lower rates. The central bank said it was dedicated to bringing about a "timelier return" to its 2% inflation goal, setting the table for more tightening this year.

Fed Chair Kevin Warsh stated at his press conference that the U.S. economy is strong and ensuring price stability need not harm the job market. That view was sustained by the Labor Department's weekly jobless claims report, which showed initial claims dipping to near-1969 lows.

Financial markets are now pricing in a 53.1% likelihood of another 25-basis-point rate hike at the Fed's next meeting in October, up from 27.2% a week ago, according to CME's FedWatch tool.

The CBOE Market Volatility Index, often called "the fear index," touched its lowest level in over a week, moving in concert with easing crude prices.

"When you have an oil shock this lengthy, it's bound to start to seep in prices all across the economy," Mayfield added. "It's really the only major headwind facing the global economy right now. And to get any sort of relief or resolve there is a tailwind for consumers, it's a tailwind for corporates, and it allows the Fed to be less hawkish."

**Sector and stock highlights**

Technology led the percentage gainers among 11 major sectors of the S&P 500, rising 2.2%. Gold and silver miners and chips were among the clear outperformers, both advancing more than 3%. Homebuilders gained 1.1% after housing data showed single-family housing starts and pending home sales increased in August. Interest rate-sensitive banks stabilized after a 2.3% selloff on Wednesday, ending up 0.2%.

Crypto-linked stocks rose after the U.S. Securities and Exchange Commission unveiled a five-year exemption for tokenised stock trading. Circle Internet Group and Robinhood rose 5.8% and 5.2%, respectively, while Coinbase advanced 5.8%.

CoreWeave fell 4.2% after it announced plans to raise capital via stock and convertible bond offerings. Fluence Energy tumbled 15.4% after lowering its revenue forecast for fiscal year 2026.

Advancing issues outnumbered decliners by a 2.38-to-1 ratio on the NYSE and a 2.21-to-1 ratio on the Nasdaq. Volume on U.S. exchanges was 17.57 billion shares, above the 15.37 billion average over the last 20 trading days.

**Other central banks**

The Bank of England held its benchmark interest rate steady on Thursday, as expected, while warning that soaring energy costs would intensify inflation pressures, according to reports. The Bank of Japan is widely forecast to raise interest rates to a 31-year high on Friday, joining other major central banks in fighting persistent inflation driven by soaring oil costs.

Euro zone inflation was revised slightly lower to an annual 3.2% in August, from a preliminary estimate of 3.3%.

**Broader market context**

The MSCI World index rose 0.7%, and the dollar broke a six-day winning streak, according to a report from Miami Herald. Gold rose 2%, its biggest one-day gain in a month. The Atlanta Fed's GDPNow model pointed to 5.1% growth in Q3, which would be the strongest non-pandemic-distorted quarter since 2000, the report added.

Investors are gaining more confidence in the Fed's inflation-fighting resolve, but uncertainty about how far it will raise rates is likely to cause volatility in the weeks ahead, according to analysts cited in the same report.