Global equities edged higher on Thursday, with U.S. stocks and Treasuries advancing in tandem while the dollar hovered near seven-week highs. A pullback in oil prices bolstered optimism that inflation can be kept under control, just one day after the Federal Reserve raised interest rates and signaled further tightening ahead. As of writing, Dow futures gained 0.82%, S&P 500 futures rose 0.83%, and Nasdaq futures climbed 1.09%. In Europe, the Stoxx 600 index added 0.6%, with cyclical-sensitive stocks leading the charge. On Wall Street, AI-related companies stood out in pre-market trading, with all members of the "Magnificent Seven" trading higher.

Alexandre Drabowicz of Indosuez Wealth Management noted that with the rate decision now in the rearview mirror, earnings expectations have re-emerged as the primary driver of equity markets. Tej Sthankiya of Federated Hermes pointed out that the next major catalyst for AI stocks could come from Anthropic PBC's filing for an initial public offering. "Currently, public market investors lack clear visibility into the revenue growth and margin trends of the largest native AI companies," Sthankiya said. "If both metrics exceed expectations, the market will gain greater confidence that AI capital expenditures can generate substantial and sustainable returns on investment."

Fed Rate Hike Now in the Past

With the Fed's rate decision now settled, markets are assessing what comes next. The rate increase, coupled with the Fed's commitment to curbing inflation, has somewhat alleviated price pressure concerns that had previously driven bond yields to multi-decade highs. Falling oil prices have further reinforced confidence that the most pessimistic inflation scenarios may not materialize. The Fed's latest "dot plot" indicates officials expect one more rate hike this year, and money markets currently price in a cumulative three hikes over the next 12 months.

Tai Hui, Chief Market Strategist for Asia Pacific at JPMorgan Asset Management, warned that if the Fed maintains a hawkish stance into 2027, investors will need to reassess valuations across asset classes, particularly technology stocks. "We believe the probability of U.S. policy rates returning above 5% remains limited," he added. "However, finding a catalyst to sustain the bull market in equities over the foreseeable future may not be easy."

Oil Prices Poised for Two-Day Decline

Brent crude is on track for its first two-day drop this month, falling 1.2% to below $105 per barrel. European natural gas prices also retreated on Thursday. The pullback in crude was driven by signs that Middle East supply disruption pressures may be easing. Axios reported that U.S. President Donald Trump plans to meet with Persian Gulf leaders during the UN General Assembly in New York next week to discuss next steps in the Iran conflict. Joachim Klement, strategist at Panmure Liberum, remarked: "Current market expectations for further rate hikes in 2027 may be overdone. We believe bond yields are more likely to move lower next, which should in turn provide support for equities."

Dollar Holds Near Seven-Week Highs

The dollar was largely flat, holding near seven-week highs, supported by rising short-term U.S. Treasury yields as markets ramp up bets on another Fed rate increase. Notably, the benchmark 10-year yield and the longer-dated 30-year yield showed little change. Lisa Wang, Head of EMEA Investment Strategy at Franklin Templeton Investment Solutions, said Wednesday's move "enhances the Fed's credibility and sets a ceiling on long-term yields rather than pushing them higher." She added that despite recent warnings about AI-related risks, capital will continue to flow into the AI sector. "Overall, we remain cautiously optimistic on global risk assets," Wang said, while noting a neutral stance on the dollar. "The bigger question," she explained, "is whether the dollar's status as the world's primary reserve currency will diminish over the longer term."

The yen tumbled sharply following the Fed's hawkish hike, elevating the importance of the Bank of Japan's policy meeting on Friday. The yen fell as much as 1% overnight to 156.42 per dollar before paring some losses later on Thursday. Gold, meanwhile, is poised for its first weekly gain, reclaiming the $4,300 level after dropping to a near six-week low on Wednesday. Independent analyst Ross Norman commented: "I suspect the market had built up excessive long positions in anticipation of the rate hike. Now that the hike has materialized, those positions are being unwound."

Following the Fed's unanimous rate increase, Wall Street shifted its outlook: Goldman Sachs now predicts an October hike, while Bank of America expects moves in both October and December. Fed Chair Warsh presided over the first rate hike in three years on Wednesday. Nick Timiraos, often called the "Fed whisperer," noted that the more notable signal was Warsh's framing of the action not as a one-off adjustment but as a signal of potential further tightening. Markets quickly responded. Morgan Stanley Chief U.S. Economist Michael Gapen revised his forecast after the meeting to a total of three hikes—including Wednesday's—up from his previous estimate of two. Goldman Sachs now expects the Fed to raise rates by 25 basis points in October, becoming one of the first major Wall Street banks to predict consecutive hikes. This marks a reversal of Goldman's earlier stance. Bank of America Global Research is another major institution expecting a more aggressive tightening path, forecasting rate increases in both October and December.

In a notable shift, Wall Street's biggest bull Ed Yardeni has capitulated: just one month after raising his target, he has slashed his S&P 500 year-end target to 7,900, citing rising downside risks to the economy over the next three to six months. The president and chief investment strategist of Yardeni Research Inc. cut his year-end target from 8,400—which was still the highest forecast on Wall Street as of last month—to 7,900, placing him in the middle of the pack among more than 20 strategists surveyed. Yardeni is the second strategist this week to lower their S&P 500 forecast. He still expects "recession-free growth through the end of this decade," adding that his previous 8,400 year-end target is now his mid-2027 objective. His 2027 earnings per share estimate of $425 remains unchanged.

Stock Movers to Watch

Generator manufacturer Generac surged 33% after reaching a deal with Amazon (AMZN) to supply generators for the tech giant's data centers. Initial delivery orders for 2027-2028 are expected to total $2.4 billion. Generac also granted Amazon the right to purchase up to $340 million worth of its own shares. Amazon shares rose 1.3%. Lennar Corporation saw its shares fall 1.2% after reporting weaker-than-expected third-quarter results. The homebuilder posted earnings per share of $1.19, missing the FactSet analyst consensus of $1.28 and just under half of year-ago levels. Revenue came in at $8.05 billion, trailing the $8.23 billion consensus estimate.

Battery energy storage firm Fluence saw its shares plunge 22% after slashing its full-year guidance. The company now expects 2026 revenue of $2.4 billion, down from its previous guidance of $2.9-3.1 billion. It also projects an EBITDA loss of $200 million, compared to its earlier range of a $30 million loss to a $10 million profit. Nike rose 1.5% after announcing the appointment of Alexandre Arnault, Deputy CEO of LVMH's Moët Hennessy division, to its board of directors. "Alexandre is renowned for his expertise in helping iconic global brands navigate transformation, innovation, and growth in fast-moving and complex markets," Nike said in a statement. Arm Holdings CEO Rene Haas expressed growing confidence in the company's ability to meet market demand for new data center chips, sending shares up approximately 4%.

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