Global Stocks Rally Even as Fed Hike Odds Surge: Why Risk Assets Are Holding Up

Despite U.S. August CPI holding at a relatively high 3.4% year‑on‑year, global equities staged a rebound on September 11. The Dow Jones Industrial Average jumped more than 500 points and the S&P 500 also finished higher, signaling that inflation worries and equity strength are co‑existing for now. A key driver was a roughly 3% pullback in crude oil futures, which eased concerns about fuel and transportation costs and helped calm investor sentiment.

At the same time, interest‑rate futures now imply an 80%+ probability that the Federal Reserve will raise its policy rate by 0.25 percentage point at next week’s FOMC meeting. Longer‑dated U.S. Treasury yields, which had recently been hovering at multi‑year highs, edged lower after the inflation release as investors increasingly bet on a “pre‑emptive” hike to prevent an uncontrolled rise in long‑term borrowing costs. Some strategists describe the move as more of an insurance policy to anchor inflation expectations than an attempt to engineer a recession.

For investors, this environment is creating a sharper divide within risk assets. Expensive growth and high‑dividend stocks face valuation headwinds from higher rates, while sectors with solid earnings momentum—such as AI‑related names and select consumer companies—continue to attract capital. Markets will now focus on the Fed’s statement and press conference next week, where any guidance on the likelihood of additional hikes could set the tone for equities, bonds and currencies into year‑end.