Tue Sep 15 — FOMC day one with a 92%-priced hike, the 10Y back above 5% (highest since 2007), Brent near $108 on the Saudi pipeline shutdown, and mixed China data overnight.
Monday re-opened every risk Friday's rally had papered over. The S&P 500 closed at 7,619.98 (−0.48%), the Dow at 52,421.20 (−0.29%), the Nasdaq at 26,186.41 (−0.56%), and the Russell 2000 at 2,892.24 (−0.40%), as a weekend AI-safety debate hammered chips (the semiconductor ETF fell 5.5% on the day) while oil and yields kept climbing. The 10Y briefly broke 5% intraday — its first touch since October 2023 — and it is back there this morning at ~5.03%, the highest since 2007. This morning the two-day FOMC meeting convenes, and the market has priced a 25bp hike at 92%, the first increase since mid-2023 and the first decision under the new Chair. The reaction function is unchanged from yesterday, but the stakes are higher: the Fed needs to do its job on inflation while the oil tape keeps raising the cost of doing it. Data are ~15-minute delayed, not tick real-time.
At a Glance
| Item | Value |
|---|---|
| Prior close (Mon Sep 14) | SPX 7,619.98 (−0.5%); Dow 52,421.20 (−0.3%); Nasdaq 26,186.41 (−0.6%); Russell 2,892.24 (−0.4%) |
| VIX (Mon close) | 17.18 — up 8.5% Monday on the AI-safety selloff |
| 10Y yield (overnight) | ~5.03% — highest since 2007; touched 5.033% early Tuesday |
| WTI crude (overnight) | ~$103.76 (+2%); Brent ~$108.06 (+2%) on the Saudi pipeline shutdown |
| September hike odds | 92% for 25bp Wednesday (CME FedWatch via WSJ), up from 59% a week ago |
| Today's key event | FOMC day one — meeting convenes; Empire State survey 8:30 AM ET; $13bn 20-yr reopening; Bessent House testimony |
| Next structural event | Wed Sep 16 — FOMC decision 2:00 PM ET + Chair press conference 2:30 PM ET |
The FOMC Reaction Function
The framework's read on Wednesday's 2:00 PM ET decision:
- In-line (25bp to 3.75–4.00%, SEP holds a shallow path): The clarity trade extends — equities rally into the confirmed decision, the 10Y retreats from 5.03% as the Fed shows it is doing its job, VIX compresses from 17.18, and the dollar steadies. This is the base case and it is fully priced at 92%.
- Hawkish (25bp + SEP signaling a steeper path into next year): The bond market gets confirmation the Fed is serious but equities wobble — the 10Y tests higher, the Nasdaq lags as duration risk re-prices, and the AI-caution trade gets a second leg. Oil above $105 keeps the hawkish tail fat.
- Hold (the ~8% tail): The hold surprise — the long end sells off hard as the "bond-market revolt" scenario priced by dealers materializes, the 10Y spikes well through 5%, and equities drop as the Fed looks unwilling to do its job into a $108 crude tape.
Overnight Headlines
Oil marches higher — Brent ~$108 (+2%), WTI ~$103.76 (+2%). Saudi Arabia's East-West pipeline — the key Hormuz bypass — remains shut after drone attacks, Gulf-Iran talks on a Hormuz shipping conduit are stalled, and the Houthis have tightened their grip near the Bab al-Mandeb Strait. Energy strategists note the Strait of Hormuz is still effectively disrupted; gasoline prices are running more than 35% above year-ago levels.
The global bond selloff is back in the driver's seat. The 10Y's 5.033% is the highest since 2007. Japan's 10Y crossed 3% — a three-decade high — ahead of Friday's Bank of Japan meeting, where a 25bp hike to 1.25% is widely expected. Germany's 10Y sits near 3.55%, its highest since 2009; Australia's hit 5.41%. Treasury Secretary Bessent appears before the House Financial Services Committee today after struggling to calm the selling with expanded buybacks.
China data comes in mixed. August industrial production rose 5.2% year over year, beating forecasts, but retail sales (+0.4%) missed and fixed-asset investment (−7.2% year to date) undershot, with home prices still falling. Asia was soft: the Shanghai Composite fell 0.54% and the Nikkei was roughly flat, while Europe's STOXX 600 slipped ~0.4% with banks down 1.3%.
Tech stays heavy into the open. Alphabet and Microsoft are each down more than 1% premarket; chipmakers trade in a narrow range after Monday's 5.5% semiconductor-ETF slide, with Nvidia marginally higher. Crypto stocks are weak too: bitcoin slid 2.6% to ~$76,940, taking Coinbase and Strategy down more than 4.5%.
What to Watch at the Open
- Futures trimmed the pre-dawn slide. By ~7:30am ET, S&P futures were off 0.16% and Dow futures 0.24%, improving from the 4:36am read (ES −0.52%, NQ −0.58%). The question is whether the improvement holds into the cash session or fades with the 10Y pinned at 5.03%.
- The 10Y at 5.03% — the line in the sand. A further push higher pressures the growth bid into tomorrow's decision; any pullback relieves it. Watch the $13bn 20-year reopening auction to see whether the bond market buys the Fed's resolve.
- The oil tape — Brent ~$108, WTI ~$103.76. Another pipeline headline could re-test Monday's near-$110 Brent spike, and every dollar feeds Wednesday's hawkish read. Energy is the day's natural hedge, and gasoline-price headlines carry consumer-side damage.
- Empire State at 8:30 AM ET. The first September read on regional manufacturing activity — soft enough to cool the hawkish read, strong enough to feed it. Desk judgment: with the FOMC one session out, positioning dominates; watch rotation into defensives and software on any chip-driven broad-market weakness.
The Structural Read
The structural bullish anchor — year-end SPX 8,150 (+7.0% above Monday's 7,619.98) — heads into FOMC week intact but under genuine strain. Yesterday's tape confirmed the framework's read: the AI-caution trade is no longer just a Monday story — it is a live debate about the capex cycle itself, and it has cost the Nasdaq the better part of a percent while software and cybersecurity carried the other side. The risk to the anchor is not the hike itself — it is 92% priced — it is the bond market demanding more than one: futures already price further increases into next year, the 10Y at its highest since 2007 is the market's invoice for past inflation misses, and crude at $108 re-inflates the very path the Fed is about to step onto. The one constructive read: equities absorbed Friday's hotter CPI and a 5% 10Y without panic — Desk judgment: if Wednesday delivers the in-line hike — the Fed doing its job on inflation — the year-end anchor's path runs through re-risking, not capitulation.
Bottom line: Monday took back Friday's relief — the S&P 500 at 7,619.98, VIX at 17.18, and crude back above $103. Tuesday brings the two-day FOMC meeting with a 92%-priced hike and the 10Y at its highest since 2007. Tomorrow's 2:00 PM ET decision is about whether the Fed does its job on inflation — or the oil tape forces it to do more.
Sources: AP/Barchart (Monday closes), MarketWatch (VIX), Reuters (futures, Brent, WTI, China data), WSJ (10Y, FedWatch odds), CME (FedWatch), Barron's (premarket movers), FRED (DGS10), Scotiabank (economic calendar), NBS (China activity data).
Disclaimer: This research is for informational purposes only and does not constitute investment advice. Options trading involves substantial risk of loss. Past performance is not indicative of future results.