Stocks and bonds rising together, crude oil briefly breaking above $100, the AI narrative once again taking over tech stocks... After the Fed's hawkish rate hike landed, what are US stocks pricing in now?

US stocks staged a fairly satisfying rebound on Thursdayeven though just a day earlier, the Fed had just completed its first rate hike since July 2023. All three major indices closed higher. The S&P 500 rose 1.1%, the Nasdaq Composite led with a 1.7% gain, and the Dow Jones Industrial Average climbed 316 points, or 0.6%. The Russell 2000 index, which tracks small- and mid-cap stocks, rose 0.5%. Nine of the S&P 500's 11 sectors closed in positive territory, but the DRIVE was highly concentrated in tech stocksNVIDIA Corporation(NVDA.US), Amazon.com, Inc.(AMZN.US), Microsoft Corporation(MSFT.US), Intel Corporation(INTC.US), and AMD(AMD.US) all posted significant gains. "Previously, the market anticipated a Fed rate hike, and many sectors were hit hard; now capital is starting to flow back," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. "And now, many investors are buying the dip during the pullback." Stocks rose while bonds also gaineda situation rarely seen after a "hawkish" Fed rate hike. The 10-year Treasury yield fell from 5.02% touched on Wednesday to as low as 4.93%, while the 30-year yield dropped from 5.36% to 5.27%. Meanwhile, US crude oil briefly fell below $100 per barrel for the first time since last Friday. These seemingly contradictory pieces of good news appearing at the same time constitute a multi-layered narrative about "what the market is pricing in after the rate hike." Oil's Ebb: The Pricing of GEO Group Inc Politics Is Loosening The most direct external driver of this rebound came from the cooling of the crude oil market. During Thursday's session, US WTI crude briefly fell below the $100 mark, and Brent crude touched a low of $101just two days earlier, Brent had stood above $109. By the close, WTI's decline had narrowed somewhat, down only 0.5% to $101.91, while Brent fell 0.9% to $104.82. Two downward threads for oil prices resonated on the day. First, reports said President Trump is expected to meet with leaders of the six Gulf Cooperation Council countries during the UN General Assembly in New York next week to discuss the next steps in the Iran conflict. Trump himself told reporters, "Hopefully we are nearing the end of the war." Second, Saudi Aramco is working to bypass the damaged section of the East-West pipeline and plans to restore about half of its capacity within days, or 2 million to 2.5 million barrels per day. Full repairs are expected to take about six weeks, but the news of "partial resumption" was enough to ease the market's most urgent anxiety about short-term supply disruptions. However, the absolute level of oil prices remains unsettling. So far this year, both WTI and Brent have gained more than 70% cumulatively. The US average retail gasoline price rose another 7 cents on Thursday to $4.43 per gallon, while the average diesel price jumped 8 cents to $6.39, 93 cents higher than a month ago. Baird investment strategist Ross Mayfield described the oil price shock as "the only major headwind facing the global economy right now." "When an oil price shock persists for this long, it inevitably permeates the entire economic price system. But any easingit's good for consumers, good for businesses, and it can also make the Fed less hawkish." A "Breather" for Treasury Yields The bond market's reaction was equally crucial. Against the backdrop of a Fed rate hike and a dot plot suggesting one more hike this year, Treasury yields declined, which seems to convey a subtle signal: the cooling of macroeconomic uncertainty has reassured investors, while the hawkish tone of Warsh's Wednesday press conference has been gradually digested by the market. Newly appointed Fed Chair Kevin Warsh displayed a "restrained hawkishness" in his first press conference that the market found acceptable. Krishna Guha, vice chairman of Evercore ISI, commented: "Warsh's press conference was clear, confident, and consistent in its hawkish stance, but without giving the impression of being crazy." ABN-AMRO economist Rogier Quaedvlieg interpreted it from another angle: Warsh "withstood pressure from the Trump administration and maintained the Fed's credibility by delivering on the previously signaled rate hike." Northlight Asset Management chief investment officer Chris Zaccarelli put it more vividly"Warsh threaded the needle and handled it very well." Market pricing is also adjusting rapidly. CME's FedWatch tool shows traders currently pricing about a 54% probability of another 25-basis-point hike at the October meeting, compared with just 27% a week ago. In other words, the market is indeed gradually accepting the reality that "the rate hike cycle is not over," but accepting it in a mild, orderly waynot a panic-driven one. Overseas bond markets are also cooperating with this easing of sentiment. The Bank of England on Thursday chose to keep rates unchanged at 3.75% (by a 6-3 vote), while unexpectedly abandoning its plan to sell long-term UK government bonds, instead saying it will hold about 222 billion of gilts maturing between 2026 and 2034 to maturity. This adjustment pushed the UK 30-year gilt yield down 4 basis points to 5.82%, and the 10-year down to 5.262%. Jensen Huang's "Doubling" Expectation: Emotional Repair of the AI Narrative Beyond the macroeconomic positives, the tech sector's leadership had a more specific catalystNVIDIA Corporation CEO Jensen Huang said at an event in Scotland convened by King Charles III that he expects the company's chip sales next year to be double this year's. "AI is bringing enormous value contributions to different industries and different economies. You can see in almost every country where we do business that people want to invest in AI," Huang said. He also noted that the current bottleneck is not demand, but NVIDIA Corporation's ability to produce the chips. This statement did not come out of nowhere. NVIDIA Corporation had previously projected that revenue growth for the fiscal year ending January 2028 would reach about 70%, with revenue of about $673 billion. And Huang disclosed last autumn that the company delivered 6 million Blackwell GPUs within four quarters. This "sales doubling" remark further strengthened the market's confidence in the sustainability of the AI infrastructure investment cycle. Rebound or Reversal? Thursday's action easily creates the illusion that "the alarm has been lifted." But several factors warrant caution. Strategy research from Jefferies Financial Group Inc. provides a less reassuring historical reference: one month after the first rate hike, the S&P 500's average return was negative 1.6%; three months later, the average return was negative 4.2%, the weakest performance among all periods. The firm's equity strategist Jane Gibbons said: "Looking back at the historical returns of the S&P 500 during rate hike cycles since 1983, rate hikes are not favorable to stock market returns." The Huatai strategy team analyzed that after the September rate hike landed, the market may have a desire for a rebound, but the sustainability and elasticity of such rebounds are relatively limited. The reason is that the nature of this rate hike cycle has changed: against the backdrop of better-than-expected employment data and Middle East conflict pushing up energy prices, the hike can hardly be characterized as a "preventive" operation, but rather a passive response to recent data, and the risk of lagging behind the curve is rising. Morgan Stanley, JPMorgan, and Goldman Sachs Group, Inc. take a relatively optimistic stance, believing that the market has already priced in some policy shift, corporate earnings and economic growth remain the main factors supporting stocks, and a single rate hike may not change the medium-term direction of this rally. Goldman Sachs Group, Inc. noted in a research report that high rates are a headwind for stocks, but not a force that ends a bull market. As long as earnings growth remains strong and corporate balance sheets stay healthy, the US stock bull market has a solid foundation to continue. The tension between these two judgments essentially depends on one antecedent variable: how long oil prices stay elevated. If the US-Iran conflict can make substantive progress on the diplomatic frontTrump's meeting with Gulf leaders next week is a window to watchthen inflation expectations may fall, and the Fed's rate hike path will be milder. Conversely, if oil prices continue to hover above $100 per barrel, the process of high rates shifting from a "risk scenario" to a "base case" will put sustained pressure on valuations. Triple Witching Overlay: Markets Face a Liquidity Test on Friday But for tonight, Wall Street is preparing for possible volatility. On Friday, US stocks will face the quarterly "triple witching," when index futures, index options, and single-stock options contracts all expire simultaneously. According to Bluekurtic Market Insights, its historical performance can be described as notoriously bad. Data tracking performance since 2000 shows a fairly consistent trend: since 2012, the S&P 500 has closed lower in 12 of 14 "triple witching" days. The only two exceptions during this period occurred in 2017 and 2025, when the index barely managed gains of 0.2% and 0.5%. With options representing more than $2 trillion in notional delta expiring in a concentrated fashion, market observers warn that this quarterly liquidity event could trigger downside volatility. This upcoming expiration event comes during what has historically been the most challenging month of the year for stocks. Although the S&P 500 has so far withstood these seasonal headwinds with an unusually calm 0.3% gain, Friday's massive expiration event could become the ultimate test of this month's performance so far.