U.S. equities rebound as the Fed delivers its first rate hike in three years

Stock markets surged on Thursday as falling oil prices provided a much-needed respite after the Federal Reserve's initial interest rate increase under Chair Kevin Warsh. The central bank's policy decision aimed to tackle persistent inflation concerns, prompting investors to return to their preferred sectors. Technology shares, including Nvidia and Amazon, jumped more than 2% each, contributing to the overall positive sentiment.

This comes as the second half of September traditionally presents a weak period for equities, with the S&P 500 shedding 1.7% so far this month. Brett Mitstifer, chief investment officer of Flagstar Bank, noted that while the start of a hiking cycle can bring volatility, disciplined investors should view market fluctuations as opportunities to upgrade quality rather than abandoning risk altogether.

The Dow Jones Industrial Average climbed 0.61% to 51,778.04, while the S&P 500 gained 1.06% to 7,631.86, and the Nasdaq Composite rose 1.59% to 26,390.96. Despite its higher sensitivity to interest rates, the small-cap Russell 2000 index also saw an increase of more than 1%. However, the Federal Reserve cautioned that additional rate hikes might be necessary in the coming months to manage prices.

The uncertainty surrounding potential rate increases is expected to keep stocks and bonds volatile in the weeks ahead. Traders are giving a near 51% chance of another rate hike during the central bank's meeting in October, up from around 44% the previous day. The yield on the benchmark 10-year U.S. Treasury note declined, alleviating some pressure on equities.

Eight of the 11 major S&P 500 sectors were up, with utilities leading gains at 1%. Financials at the S&P 500 remained flat, on track for their fourth consecutive day of losses. Oil prices dropped for the second consecutive day, with Brent crude futures falling over 2% to $103.43 and US West Texas Intermediate crude futures declining about 2% to $100.66.

Crypto-linked stocks saw gains after the U.S. securities regulator announced a five-year exemption for tokenized stock trading. Robinhood and Circle Internet Group rose by 3% and 4% respectively, while Coinbase advanced by 3%. Shares of neocloud firms like Nebius and IREN increased by approximately 2% each. Nebius announced it would raise pay-as-you-go prices for leasing select Nvidia chips from October 1.

CoreWeave fell 4% after announcing plans to raise capital via stock and convertible bond offerings. Gold miners benefited from a 2% rise in bullion prices, with the VanEck Gold Miners ETF gaining 3.5%. Advancing issues outnumbered decliners on both the NYSE and Nasdaq, with the S&P 500 recording 12 new 52-week highs and 15 new lows, while the Nasdaq Composite had 46 new highs and 87 new lows.