What happened on the second day after the interest rate hike when US stocks and bonds rose together and gold rebounded?

The market saw a dramatic reversal the day after the Federal Reserve raised interest rates. Stocks, bonds, and gold all rose in tandem, with AI chip stocks leading the tech sector. Short sellers faced a massive squeeze, and panic quickly subsided.

On Thursday, the S&P 500 recovered its 50-day moving average, while the Nasdaq led the major indices in gains, with AI chip stocks, which had been the most heavily sold off, rebounding strongly. Intel rose more than 7.7%, Arm rose 8.6%, and AMD rose 6.5%.

Meanwhile, U.S. Treasury yields fell across the board, with the 10-year yield erasing the previous day's gains and the 30-year yield declining by 8 basis points from Tuesday's close, indicating a significant short squeeze in long-term interest rates.

Spot gold rose 2.3%, rebounding from a near six-week low in the previous trading session and approaching the $4,400 mark.

Analysts believe there are three core reasons for this rebound:

First , the decline in crude oil prices has eased market concerns about an energy supply crisis and initially improved risk appetite;Secondly , the downward signal of long-term interest rates has softened market expectations for the path of interest rate hikes, thereby easing valuation pressures in capital-intensive sectors such as data center construction.Third , the forced liquidation of short positions to stop losses objectively created a passive driving force that pushed up stock prices.

Goldman Sachs data shows that the most heavily shorted stock portfolio surged that day, marking its biggest single-day gain in six weeks. However, Goldman Sachs' market activity rating was only 4/10, suggesting that this rebound may lack staying power.

The pullback in crude oil prices has created room for risk appetite.

Thursday's market movement began with the overnight decline in crude oil prices.

Wall Street News reported that Saudi Arabia has reportedly proposed a two-week ceasefire to the Houthi rebels. Furthermore, according to Xinhua News Agency, Wang Yi stated during his meeting with the Iranian Foreign Minister on Wednesday that China does not want regional tensions to spill over further into Yemen and the Red Sea, and called for resolving the issues through dialogue and negotiation.

The aforementioned news caused a sharp decline in spot Brent crude oil prices over the previous two days, easing some of the panic in the physical market.

US WTI crude oil fell below the $100 mark during the session, hitting a daily low of $99.1, down nearly 3.3% on the day; Brent crude oil hit a daily low of $101.53, down nearly 4.1% on the day, before gradually narrowing most of its intraday losses.

Prices of refined oil products fluctuated, with gasoline prices hitting a new cyclical high, while diesel prices plummeted and heating oil prices also declined.

However, the fundamental risks on the supply side have not been eliminated. Rebecca Babin, senior energy trader at CIBC Private Wealth Group, said that overall supply remains tight, supporting prices, while the ongoing conflict between the US and Iran continues to disrupt energy flows in the Middle East, and the situation in Russia and Ukraine remains unclear.

Arne Lohmann Rasmussen, chief analyst at Global Risk Management, stated:

We view this as a buying opportunity for crude oil and refined products, as prices have fallen but the potential supply risks have not disappeared.

In a report, JPMorgan analyst Natasha Kaneva wrote:

For the first time since the outbreak of the conflict in Iran, we have no baseline forecast... We simply don't know how to model the outcome.

The decline in long-term interest rates is a market endorsement.

The day after the Federal Reserve raised interest rates, the US Treasury market moved in the opposite direction to the rate hike.

U.S. long-term bond yields led the decline, with the 30-year Treasury yield falling 8 basis points from Tuesday's close, erasing the previous day's gains, before accelerating its rise in late trading. Meanwhile, weak U.S. housing data reinforced cautious expectations for the economic outlook.

British government bonds rose on the same day, and long-term yields fell by more than 10 basis points, further boosting sentiment towards US Treasuries.

Citi analyst Michael Chang stated:

The Federal Reserve has demonstrated credibility in combating tail risks to inflation, which is a positive sign for bond investors. This is reflected in the fact that long-term inflation expectations have declined in both yesterday and today.

This rate hike marks the fourth rate hike cycle this century and the 15th since the mid-1950s. According to historical data compiled by Deutsche Bank, past rate hike cycles have lasted an average of 22 months, with a median of 15 months, and an average cumulative increase of 478 basis points, with a median of 313 basis points.

Current market pricing reflects a very restrained tightening path. A cumulative interest rate hike of approximately 95 basis points over the next 12 months, if realized, would be the shallowest rate hike cycle in modern history.

However, history has repeatedly shown that the ultimate extent of an interest rate hike cycle is often difficult to predict at its inception, and the final outcome almost always exceeds initial market expectations . Historically, economic recessions have occurred on average 3 to 3.5 years after the first interest rate hike, but the range varies considerably.

The probability of an interest rate hike in October is currently around 55%, and the probability of a rate hike in December is about 75%. However, whether this round of interest rate hikes has peaked is still the biggest point of contention in the market.

AI chip stocks emerged as the biggest winners, with a short squeeze dominating the market.

Behind Thursday's market rally led by the technology sector, the rebound of AI chip stocks was particularly prominent.

The Philadelphia Semiconductor Index rose 3.14% to 11,599.05 points, making it the best-performing major index of the day. Memory and logic chips both strengthened. AMD rose 6.36%, SanDisk rose 6.21%, Micron rose 5.50%, Marvell Technology rose 4.81%, and Western Digital rose 1.65%.

Gil Luria, Managing Director of DA Davidson, pointed out that the decline in oil prices and the drop in US Treasury yields together "alleviated some of the concerns investors had after Wednesday's Fed meeting." He stated:

Data center construction is highly sensitive to interest rates, so any signal that the room for interest rate increases is beneficial for data center expansion and semiconductor companies.

Goldman Sachs data shows that the market was highly concentrated on the day, with the S&P 500 remaining almost unchanged after removing AI-related stocks, still down nearly 1% from Tuesday's close. This means that the overall rebound was almost entirely contributed by AI-related stocks, rather than a broad-based spread across the industry.

Furthermore, the key mechanism behind Thursday's rebound was the concentrated covering of short positions .

Goldman Sachs trading desk observed a "short squeeze" in the market, with the most heavily shorted stock portfolio posting a six-week high on the day .

Even the most volatile stocks that had fallen the most in the previous year have surged, both of which indicate that this rally is just a purely technical oversold rebound, with no fundamental funds entering the market.

From the perspective of position structure, this rebound occurred at a relatively "clean" starting point—the market previously had almost no open positions:

Goldman Sachs data shows that CTA strategy funds' long positions in US equities are only $37.3 billion, which is at the bottom of the range in nearly a year.Fundamentals have driven the net leverage ratio of hedge funds to an extremely low level, which means that institutions have ample room to increase their positions.Sentiment is also at a low level. Goldman Sachs cited the American Association of Retail Investors (AAII) sentiment survey, stating that the current bull-bear spread is at a new low since 2026, the most pessimistic level since May 2025, and one of the lowest ranges since the ChatGPT era.

However, data from Goldman Sachs Prime also shows that hedge funds just made a large-scale net sale of macro assets last week, with the sell-off reaching a new high since February last year.

This means that while today's sharp rise has temporarily eased systemic selling pressure, it is far from being completely eliminated. According to Goldman Sachs' calculations, even if US stocks trade sideways in the coming week, CTA funds will still automatically sell approximately $30 billion worth of US stocks based on their models.

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