Markets Brace for Fed Rate Decision; Wells Fargo Cuts S&P 500 Year-End Target
Global markets await critical central bank rate decisions as US Treasury yields hover near multi-year highs and oil prices fluctuate. Meanwhile, Wells Fargo cuts its year-end S&P 500 target.
Global markets are bracing for a series of key interest rate decisions over the coming days, with the US Federal Reserve widely expected to raise rates by a quarter of a percentage point for the first time in three years.
Bond Yields and Energy Prices
The yield on the 10-year US Treasury note held steady at 4.996% this morning. Rising energy prices—highlighted by Brent crude surging by approximately 20% this month—combined with growing rate-hike expectations triggered a sell-off in sovereign debt, pushing US 10-year yields to a 19-year high yesterday.
Some relief washed over markets after Brent crude dropped 1% to around $107 per barrel. The recent rally, driven by supply disruptions, was increasingly viewed as overextended, while a US energy inventory report pointed to rising crude stockpiles.
Asian and Wall Street Trading
Trading in Asia was mixed with modest moves. Japan's Nikkei 225 fell 0.2%, South Korea's Kospi gained 0.7%, Hong Kong's Hang Seng dipped 0.18%, and China's CSI 300 dropped 0.4%. In India, the Nifty index fell by roughly 1%.
US stock futures traded flat to slightly higher, up about 0.1% ahead of the opening bell. Wall Street closed lower yesterday as investors avoided risk-taking ahead of the central bank's rate decision. The Nasdaq Composite underperformed, losing 0.9%, while the Dow Jones Industrial Average dropped similarly, and the S&P 500 slipped 0.4%.
The energy sector (XLE) outperformed on the back of elevated oil prices, whereas the consumer discretionary sector (XLY) lagged amid expectations of higher borrowing costs. In technology, the Philadelphia Semiconductor Index (SOX) rose 0.4% following a 6% drop the previous day, while the IGV software ETF fell 1.0% after surging 5.0% on Monday—marking an unprecedented daily divergence between the two tech segments.
Tel Aviv Stock Exchange
Dual-listed stocks returned to Tel Aviv with a mixed tone. Positive opening gaps of roughly 1% were registered by Palo Alto Networks, Teva, and Elbit Systems, whereas chipmakers Tower Semiconductor, Nova, and Camtek pointed to losses of about 1%.
The local market may find support in inflation figures released after yesterday's close. August's consumer price index rose 0.7%, matching preliminary forecasts that pointed to a sharp monthly increase between 0.7% and 0.9%, bringing the annual inflation rate to the lower end of the range at 1.5%.
The TASE ended yesterday's session sharply lower, with losses accelerating toward the close, led by energy and cleantech issues. The benchmark TA-35 index fell 0.9%, and the TA-125 dropped 1.5%.
The energy sector slumped 3.8%, followed by a 3.2% plunge in the cleantech index. Selling pressure also hit defense stocks, down 2.4%, and technology shares, which retreated 2.1%. Conversely, the overseas real estate index was the sole gainer, advancing 0.8%.
Wells Fargo Cuts Year-End S&P 500 Target
In corporate news, Wells Fargo has lowered its year-end target for the S&P 500, citing expectations that a decade-long earnings growth cycle will eventually moderate, alongside mounting risks for the technology sector.
"The mid-term congressional elections in November 2026 are gradually emerging as a risk factor for technology companies, particularly amid growing resistance to the data centers required to power artificial intelligence systems," noted Christopher Harvey, head of equity strategy at the bank.
Harvey reduced his year-end target for the index to 7,700 points from 7,950, making him one of the few Wall Street strategists to downgrade forecasts while peers continue to raise theirs. The new target implies an upside of just 1% from yesterday's close.
Harvey also turned more cautious on tech stocks, downgrading the sector from overweight to market weight. His caution follows earlier warnings that massive capital expenditure in AI infrastructure could enter its late stages as early as 2027. Within tech, he favors software over semiconductors, warning that chip stocks could retest their July lows.
Conversely, Wells Fargo adopted a more constructive stance on healthcare, upgrading the sector to overweight from market weight. A potential Democratic victory in the mid-term elections could restore expanded ACA health insurance subsidies, benefiting hospitals and health insurers exposed to private markets.
