Fed rate hike, falling oil prices spur US stock market rally: What’s ahead?

The US stock market experienced a rally as oil prices fell, providing reassurance that inflation can be kept under control. Following the Federal Reserve's decision to raise interest rates, futures for the S&P 500 rose by 0.7%, and those for the Nasdaq 100 climbed by 0.8%. Brent crude oil fell by 1% to below $105 a barrel, marking the first consecutive losses this month.

Treasuries rose across the curve, with the 10-year yield decreasing by four basis points to 4.99%. The US dollar remained steady, while gold saw its first gain of the week. Investors are now focusing on what comes next after the rate hike and inflation containment move, which has somewhat alleviated concerns about price pressures.

The Federal Reserve's dot plot indicates that one more rate hike will occur this year, with money markets pricing in a total of three hikes over the next 12 months. The easing of supply disruptions in the Middle East further boosted crude prices. President Donald Trump is set to meet with Persian Gulf leaders during the UN General Assembly in New York to discuss the next steps in the conflict.

Market expectations for additional rate hikes in 2027 may be overestimated, according to some analysts. In Europe, the Stoxx 600 rose by 0.3% with economically sensitive shares outperforming. The Bank of England is expected to keep its benchmark rate unchanged, with a hike anticipated at its November meeting. In Asia, the yen's sharp drop following the Fed's hawkish stance raises the stakes for the Bank of Japan's upcoming policy meeting.

The currency weakened by up to 1% overnight, before stabilizing. Financial institutions are now closely watching the Bank of Japan Governor Kazuo Ueda's post-press conference for insights on further tightening measures.