Chip stocks lead market rebound after Fed rate hike

Wall Street reversed its sharp losses following the Federal Reserve's rate hike, with semiconductor shares driving a broad rally on Thursday morning. The Nasdaq Composite climbed 1.4% as of 11:24 a.m. ET, while the S&P 500 gained 0.9% and the Dow Jones Industrial Average rose 0.4%. Twenty of the Dow's 30 components traded higher during the session, erasing the more than 630-point drop recorded on Wednesday.

The rebound was anchored by Intel, which surged 8.6% after CEO Lip-Bu Tan stated the company can only meet 50% of CPU demand due to limited manufacturing capacity and a shortage of memory chips. Tan also announced an acceleration in the ramp-up of new manufacturing nodes. The move boosted memory manufacturers, with Micron Technology up 5.8% and SK Hynix rising 3.9%. Other major chipmakers followed suit, with Advanced Micro Devices gaining 6.2% and Nvidia rising 2.5%, the latter providing the largest single point boost to both the S&P 500 and the Nasdaq Composite.

The macro environment supported the equity recovery as the 10-year Treasury yield fell more than 5 basis points to 4.949%, dropping back below the 5% level it had crossed on Wednesday. Oil prices also eased after news emerged that Saudi Arabia intends to increase crude supplies to Asian refiners via ship-to-ship transfers near Oman's Sohar port. U.S. crude slipped approximately 1% to roughly $100 a barrel, while Brent crude fell 2% to about $102.

Caterpillar played a disproportionate role in the Dow's performance, rising 1.9% to contribute 89 points to the index, more than double the contribution of the next-largest gainer. The stock's movement reflects its ties to the AI data center construction trade.

The market reaction comes after the Federal Reserve lifted the federal funds target range to 3.75% to 4% on a unanimous 12-0 vote, a decision that surprised many analysts who had anticipated dissents. The accompanying dot plot indicated that 16 of 18 participants expect at least one more rate increase before the end of 2026, with 10 participants seeing no cuts through 2029. Fed Chair Kevin Warsh provided a concise explanation, emphasizing that inflation needs to come down.

Despite the rally, underlying inflationary pressures persist in the technology sector. Cloud provider Nebius is raising on-demand prices on October 1, with Nvidia H100 rentals increasing by roughly 17% and B300 rentals up about 21%. Nebius also increased prices for access to AMD CPUs. These pricing adjustments highlight the cost pressures facing computing infrastructure.

Mark Haefele of UBS Global Wealth Management noted that his team projects further market gains but expects volatility along the way. Investors now face the challenge of gauging how far the Federal Reserve's tightening cycle will extend, with the recent rally occurring against a backdrop of persistent inflation concerns and rising costs for AI-related hardware.