The stock market can be fickle sometimes as seen by what happened within the span of just 24 hours. On Sept. 16, the Dow Jones fell precipitously by 631 points, closing at 51,461.90. It appeared that the Federal Reserve’s decision unnerved investors. They began to panic as the market plunged on Wall Street.
But the next day, it seemed like investors were less concerned about what the Fed had to say.
On Sept. 17, the Dowed 316.14 points (0.62%) on the day, closing at 51,778.04 on the Dow Jones. It was not enough to offset the losses incurred on the previous day.
However, what changed investor sentiment so dramatically over night?
Investors took a second look at the Fed’s announcement.
What happened on Sept. 16?
The Federal Reserve raised its key interest rate by a quarter point, to between 3.75% and 4%. The decision was largely anticipated. What investors were more concerned with was the language in theFed’s announcement. The central bank raised its key interest rate by a quarter point, to between 3.75% and 4%. They feared that another hike would follow before the end of the year. Higher interest rates usually dampen demand for stocks, spooking investors into selling off shares and piling into bonds which tend to have higher yields.
The Dow Jones fell 631 points, Treasury bonds surged and shares of financial institutions suffered a large setback as the panic spread throughout Wall Street. It seemed, at least at first, that the news had done in the stock market.
But these fears were dispelled the next day.
As mentioned before, investors began to see the light at the end of the tunnel.
They became less willing to sell shares and more open to buying stocks. As signs of recovery started to appear on the horizon, a palpable sense of relief washed over investors. On Thursday, the DJIA opened at 51,882.53, hitting a high of 51,935.97 before finishing at 51,778.04. This marked a jump of 316 points on the DJIA. It was not a huge win considering the Dow had fallen nearly 600 points the previous day. Nevertheless, it marked investors’ increasing confidence that the Fed’s decision was not going to result in the worst case scenario.
This move was helped by another development that occurred off the bat of Wall Street; the price of oil was dropping
Why the drop in oil prices matters
Oil prices can impact the health of the stock market. High oil prices can push up costs for businesses, which can reduce profits and cause stock prices to fall. As the most important inflation gauge, the Federal Reserve cannot afford to let inflation get out of hand. On Sept. 17, Brent crude was trading around $103.60 a barrel, while West Texas Intermediate was near $100.70 for the day. There were also signs of improvement in the oil markets. Supply worries appeared to be dissipating.
Expectations regarding the potential resumption of Saudi Arabia’s East-West pipeline plus increased supplies from other sources seemed to take the edge off. Lower oil prices removed another source of concern for investors. Combined with the decreasing yields of Treasury bonds, there were more reasons to feel bullish about the market than bearish.
The bond market lends credence to the idea that the market has turned a corner
The bond market moved in the same direction as the stock market. The yield on the 10-year Treasury note jumped nearly 5.01% on the day, compared to the last time it had hit the peak of 5% in 2007 according to reports from that time. Stocks tend to lose favor when Treasury yields rise since investors can find attractive yields in bonds without having to assume as much risk. Increasing yields also raise borrowing costs faced by firms, which can depress stock prices.
But bond yields rolled back slightly on Thursday, helping to shore up share prices in response to the latest developments. While it did not indicate that inflation had gone away or the Fed had suddenly taken a turn for the worse, it did go a long way towards reducing investor anxiety.
Sometimes, just a little bit of reassurance is enough for the market to shift directions.
Aerospace and defense stocks lead the market to the upside
While the DJIA was a solid performer on the day, it was not the best performing index. While the DJIA rose 0.62%, theS&P 500 jumped 1.14% and the Nasdaq Composite surged 1.69%. One reason that the Dow did not do as well as some of the other indices was related to its makeup. The DJIA is composed of 30 largeU.S. firms, it is a price-weighted index as compared to a market cap weighted index like the NASDAQ. Technology stocks tended to outperform on the day, causing the Nasdaq to beat out the DJIA.
Putting the numbers in perspective
It is important to put this number in context. Here is how the DJIA performed during a 3-day window.
September 15: 52,093.11.
September 16: 51,461.90.
September 17: 51,778.04.
The DJIA recovered a decent chunk of its losses on the day, but not quite enough to finish above the 2026 DJIA stock index closing price. The Dow was still more than two thousand points shy of the DJIA record closing high of 54,085.88, set on Aug. 4, 2026. That puts the turnaround and subsequent recovery in perspective. It was good news, but it was still far from great news.
Other risks loomed on the horizon
The Federal Reserve dominated investor angst, but that is not the only concern investors have. Supply interruptions, the Strait of Hormuz, the Middle East and Japan can also be at the root of causing concerns about higher inflation. These factors can fuel another spike in oil prices
Investors were also keeping an eye on Japan, where the Bank of Japan was set to make a statement on interest rates on Monday as another major front in this tug-of-war between the central banks.
Central bank policymaking tends to move in tandem with each other. What happens in one country typically reverberates throughout the rest of the globe.
Was the Dow back to normal?
The Dow’s 316-point victory was still well and good, but one day of gains is not going to erase the concerns of volatile interest rates, unpredictable inflation, oil prices and international geopolitical affairs. The biggest change that happened is that investor sentiment started to turn around. The change in attitude happened rapidly which makes this such a great event. Wall Street went from a state of utter panic to a newfound bullishness. It had nothing to do with a major economic report or earnings announcement.
Investors were buoyed by a decrease in oil prices and Treasury bond yields, which made the stock market more appealing. While this is all encouraging news, it is still early to say if this is the day that marks the turning point for stock markets. We would need to wait and see what happens with upcoming days in order to conclude if today was just a small move to the upside after a large drop yesterday, or if this really marks the beginning of a longer trend of rising stock prices.
This is all very exciting stuff, but we cannot forget about the more mundane facets of life.
