The stock market had its best day in six weeks the day after the Federal Reserve’s first rate hike in three years. 

As troubled as Fed watchers seemed after the initial news, investors shrugged off a hawkish central bank and piled back into the AI trade instead, as if remembering that earnings strength and hyperscaler capex are far more formidable forces than a few basis points of policy changes.

In classic comeback fashion, the S&P 500 and Nasdaq Composite both added more than 1.1% Thursday, while the Dow gained 0.61%.

Heavy-hitting AI names like Nvidia, AMD, Taiwan Semiconductor and Micron led the indexes higher to claw back most of their doomsday headline-fueled losses from earlier in the week.

Even though the Fed signaled that there will likely be one more rate hike before the end of the year, investors appear comfortable keeping the main thing — earnings momentum — the main thing. 

Positioning explains part of the rebound, given that traders saw more than a 90% shot of a rate hike heading into Wednesday’s decision.

The actual announcement included little new information.

That said, even with the ongoing Iran conflict, the Fed is nonetheless hiking into a relatively resilient macro backdrop.

Jobless claims just came in lower than expected, manufacturing has yet to collapse, and capital expenditure plans are only accelerating. 

As I said about the software bounce earlier this week, one day’s trading does not make a regime. Markets do indeed seem to be already moving on from the rate hike, but knee-jerk relief rallies usually are only visible in hindsight. 

If inflation does prove to be a bigger problem than investors expect, the resilience story can start to crack and Wall Street will have to decide between Nvidia’s enormous backlog and a Fed committed to higher borrowing costs.

🤖 Palantir CEO Alex Karp called for nationalizing leading AI labs. He said civil and criminal liability should be the first line of defense against dangerous AI, and that his enterprise clients would sue every major lab if the government did not step in. (CNBC)

📊 Initial jobless claims fell to a two-month low. Applications dropped 10,000 to 196,000 in the week ended Sept. 12 and continuing claims hit their lowest level in more than two years, undershooting a FactSet consensus of 207,500. (Haver Analytics)

🏘️ Pending home sales unexpectedly rose in August. The NAR contract-signing index climbed 0.3% versus a Reuters consensus for a 0.6% decline. It stayed 4.7% below year-ago levels. (Inman)

⭐ I had a blast speaking at Future Proof in California this week. I recorded a live Full Signal episode on stage with Sonali Basak of iCapital, and also moderated a panel with two Miami-based investors about how to pick winners in the current political climate. (Blog)

Nick Frasse helps manage the VanEck Semiconductor ETF, one of the most closely-watched funds in the world through the AI boom. We sat down to discuss how to invest in different AI bottlenecks, the most critical components in the AI economy, how semiconductor businesses work, and more.

Tune in on Spotify, Apple Podcasts, or YouTube.

🗓 September 18, 1873: Jay Cooke & Company suspended payments, collapsing the Philadelphia banking house that had financed the Union war effort and the Northern Pacific Railroad. Days later the NYSE closed for the first time in its history, triggering the Panic of 1873.

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