The Fed Yelled. The Market Slept On It.

Thursday, September 17

On Wednesday, the Fed raised rates and told everyone to expect more. On Thursday the market read that note, slept on it, and bought stocks. The S&P 500 ETF rose 1.13%. That was only its second up day in the last nine sessions, so this was less a victory lap than a man finding his car keys after a week of looking.

The Nasdaq 100 ETF did better, up 1.73%. The VIX, Wall Street's fear gauge, which prices how much investors will pay to insure against a crash, fell almost 13% to 15.44. That is the market putting the fire extinguisher back on the wall.

The strange part happened in bonds. The 10-year Treasury yield fell 8.6 basis points to 4.937%. A basis point is one hundredth of a percentage point, so that is a big move for a sleepy asset. It closed back under 5% after two straight sessions above it.

Here's the Thing: yields usually rise when the Fed hikes. They fell because long-term bond buyers do not fear a Fed that hikes. They fear a Fed that won't. When sixteen of eighteen officials write down "more to come," the bond market hears "we are actually serious about inflation" and relaxes. Dad got strict, and the kids calmed down. Weird household.

Monday's AI selloff feels like a month ago. AMD rose 6.36%. Micron rose 5.50%. Nvidia added 2.54%. The big chip ETF (SMH) gained 2.76%, and Oracle rose 5.19% without much of a fresh reason. We looked.

Micron's jump is the funny one. It came on a day when its workers in Taiwan asked for a bigger slice. Unions representing more than 80% of its roughly 15,000 employees there want 15% of operating profit paid out as a permanent bonus. Operating profit is what a company earns from its actual business before interest and taxes. No strike has been called, and production has not stopped. Mediation sessions are set for today and Monday, and the unions say a strike vote comes next if talks stall.

Meanwhile, the banks skipped the party. The financial-sector ETF (XLF) slipped 0.09% on a day the S&P gained more than 1%, and regional banks finished flat. Goldman Sachs bounced 1.44% after Wednesday's near-4% faceplant. Its own economists now expect another Fed hike in October, which is a bold thing to forecast about the people setting your borrowing costs.

Here's the Thing: when the workers who build the memory chips want 15% of the profits, you are not in a bubble that is ending. You are in a boom where everyone has noticed who is getting rich. The workers are just the last ones to ask.

Yesterday's "one thing that could ruin everyone's day" was the noon 10-year TIPS auction. TIPS are Treasury bonds whose payout rises with inflation, so the yield they sell at is the real yield, meaning what buyers keep after inflation.

It went badly, by the book. The $19 billion sale cleared at a 2.653% real yield, the highest for this term since October 2008. The bid-to-cover ratio shows how many dollars bid for each dollar sold. It came in at 2.24, the lowest for this term in a year. It also "tailed" by 1.9 basis points. That means buyers demanded more yield than the market expected right before the sale. That is the bond version of a lowball offer.

And then? The 10-year yield fell anyway.

Here's the Thing: we called the risk right and the reaction wrong. A weak auction usually pushes yields up. This one got drowned out by a bond market cheering that the Fed means business. The auction told you that real borrowing costs are the highest since the financial crisis. The market just decided that was a problem for next week.

The data kept running hot. Initial jobless claims, the weekly count of people filing for unemployment, fell to 196,000 against 208,000 expected. Take it with a grain of salt, since Labor Day fell inside that week and holidays scramble the count. The Philadelphia Fed's factory index came in at 37.8, well above the 30.5 expected but down from 47.4. Its prices-paid gauge jumped eight points to 48.6. So factories are busy, and their costs are climbing again.

Housing stayed in the corner. Housing starts fell 2.6% to a 1.275 million annual pace, short of the 1.31 million expected. Freddie Mac's 30-year mortgage average jumped to 6.95% from 6.76%, the highest since January 2025.

Here's the Thing: every one of those numbers, except housing, says "keep hiking." A tight job market plus rising factory costs is exactly the data a hawkish Fed points to before October. Home builders are the only ones reading this data and wincing.

Earnings: nothing you own.

The Fed math: CME FedWatch had an October hike at roughly 51% to 53% after the meeting. So a coin flip, with Goldman calling heads.

Triple witching. It is the third Friday of September, when a quarter's worth of stock options, index options, and index futures all expire at once. On a normal Friday that means choppy trading at the close. On a Friday that comes one day after a big relief rally, two days after a Fed hike, and hours after Japan hiked too, it means big players have plenty of reasons to reset all at once. Watch the last hour.

The Fed got stern, Japan got stern, and the market spent the day getting comfortable. Enjoy it. The closing bell rings at 3.

Follow us on X and Instagram for daily market updates

Markets don't wait, and neither do we. Follow Tracking the Trade for fast takes, the numbers that matter, and the occasional meme that hits a little too close to your portfolio.

Nothing here is investment advice. We are a newsletter, not your fiduciary, and the only position we hold is that the market is funnier than it thinks it is. Do your own homework.