Stocks Crashed After The Fed Move But Here’s What Investors Missed | Kenny Polcari

Well, good morning. Yes, it's me, Kenny Polcari, your host of the party. And today is Thursday, September 17th, 2026. And here are the things that you need to know to get your day started. Well, we're off the Fed hikes and, well, markets retreated yesterday. Oil is down this morning. The 10-year is falling by 3 bps and futures are rallying. Gold is rallying. The VIX, well, that's back in the complacent zone. And there's lots of data in the weeks ahead, and then it's going to be all about earnings season all over again. And what do we have for dinner tonight? We're going to try the halibut. Okay, sports fans, here we go. Because yesterday the Fed hiked by 25 basis points, taking the Fed funds rate to 3.754%. All 12 voting members voted unanimously to hike rates by the 25 bps, and the dot plot suggests at least One more hike this year. At 2:30, the VIX, which is the fear index, was trading at 16.25. During Kevvy's press conference, it exploded up to 18.94, or up 17%. Markets are now pricing in a 50% chance of another hike in October. The S&P went right down and tested 7,500, a level that I told you to watch for if investors were disappointed. The 2-year surged by 7 bps as traders repriced the path of monetary policy, while the 10-year ended the day yielding 5.02%. WTI oil, right, closed at $102.10 a barrel, up 71% since this conflict began. Diesel is now at $6.30 a gallon as the Middle East disruptions continue. Gold fell, the dollar rallied. Well, there you have it. That was yesterday. By the end of the day, the Dow lost 630 points, the S&P lost 33, the NASDAQ lost only 3 points, the Russell was down 11 points, the transports lost 574 points or nearly 3%— think oil and diesel— and the equal-weight S&P lost 46 points while the Mag 7 lost 41. And let me be clear, first of all, while I didn't think that they should raise rates, I was well aware that the hike was inevitable. I mean, I made it clear. I told you both Bloomberg and the predictive markets were calling for a hike. So I was not surprised that they did it. I just didn't think they should do it. I think it was a mistake. But guess what? I don't get a vote. In any event, the market handled it well until it didn't. At 2:30, Kevin Warsh stepped up to the microphone and suddenly the shit hit the fan. Of the 11 S&P sectors, 9 ended the day lower. Right? Financials down 1.6%, energy's down 2.8%, communications down 0.9%. The worst performers, they were the worst performers while tech and healthcare both ended up about 0.1%. Further down the list, we found strength in the semis. The SOX was up 0.7%, the memory names were up 0.6%, aerospace and defense was up 0.3%, quantum computing was up 0.4%, and of course the contra trades ended the day higher. The SH was up 0.5%. The DOG was up 1.2%. The SARK, which is the Short Disruptive Tech, was up 0.4%. And the SPSX was up 1.3%. Home builders got whacked, down 1%. Retail is down 0.6%. Airlines down 0.3%. Metals and miners lost 0.6%. And cybersecurity lost 0.7%. But overnight, the picture changed. Cooler heads seems to be prevailing. Treasuries are up this morning, and that's sending the 10-year down by 3 bps. To 4.98%. S&P futures are higher. European markets are higher. Brent is down 1.5%. WTI is down 1%. Gold is up $55. And the dollar is little changed. On Monday, I laid out 4 possible scenarios for the Fed and what would happen to the bond market. Yesterday afternoon, we got the one I didn't really want to see. It was scenario number 2, the Fed hikes and the 10-year rises. Bam, right? The Fed tightened in the short— the Fed tightened the short end, and the bond market refused to give us any meaningful relief at the long end. And the traders and algos, well, they did not like it at all. They did what they always do. They shoot first and then they ask questions later. But then everybody went home, right? They had dinner. They considered the alternatives. They reread the statements. They thought about what he said, and then they went to bed. And this morning, the reaction appears to be very different. And that's why you don't make an investment decision based on the first 30 minutes of a Fed press conference on FOMC day. So now we have to reconsider the 4 scenarios because scenario number 1, where the Fed hikes and the 10-year falls, appears to be the one that investors and traders are now focused on. That's the cleanest outcome, and it was from the very beginning. The Fed demonstrated that it's serious about inflation. Long rates retreat. Mortgage rates should get some relief over the coming weeks, and the pressure on stocks should ease, causing everybody to just breathe a sigh of relief. Now, I'm not declaring victory at all just yet because one overnight move doesn't make the trend. But there's another reason the bond market and the stock market may be celebrating this morning, and that's oil. Oil prices are falling, and that's where this gets even more interesting, because if crude prices fall and the 10-year yield falls, then 2 of the biggest pressure points on stocks begin moving in the right direction at the same time. Recall, the most recent spike in crude came after an Iran attack pumping stations on the Saudi, uh, on the Saudi critical east-west pipeline, right, which carries crude across the country to the Red Sea export terminal, uh, at Yanbu. The pipeline had to be shut down because of the attack, creating new fears that a prolonged disruption was going to remove about 4% of global supply from the route. But That story is changing this morning. Some of those worst-case supply fears are not coming true. They're beginning to ease. The Saudis are offering additional crude using ship-to-ship transfers off of Oman's Sohar Port, helping compensate for that pipeline disruption. So bringing supply back into the market. And there are indications that crude could begin flowing through that Saudi pipeline again within days once they repair that damage. And this matters because if the supply problem begins to get resolved and oil retreats, if oil retreats, then gasoline and diesel should eventually follow. Inflation pressures and inflation expectations should then ease. That should take some pressure off the long end of the Treasury curve, which in turn should provide some relief from mortgage rates, corporate financing costs, and stock valuations. But it's not going to happen today, just FYI. It will happen over time. But it is a positive. Remember what I've been saying, the Fed can't create more oil with a rate hike. But if the supply side starts to normalize on its own at the same time that the Fed is serious about inflation, then suddenly Kevin get— Kevi gets some help. But let's not break the champagne bottle out yet. The Middle East remains a hotspot. The conflict isn't over. The Strait of Hormuz is not operating normally. Crude remains above $100 a barrel, and perhaps most importantly, we still need to see refined product prices— think diesel and gasoline— come down. So yes, things look better this morning, but better isn't the same as being fixed. Now, this morning the VIX index, which is the fear index, is back to trading in the complacent zone. It's down 9.7% at 15.99. Now below all 3 trend lines suggesting that, guess what? Investors are not panicking at all. Gold is up $50 at $4,315 this morning after testing the trend line support yesterday at $4,280. Now, if investors become convinced that we're entering a new and sustained rate hike cycle and that pushes real yields and the dollar higher, then I would expect gold to hit a wall. Remember, gold doesn't pay you anything to own it. So as real yields rise, the opportunity cost of owning gold rises with it, right? But there's another side to this story, right? If the geopolitical situation continues to deteriorate or if inflation refuses to respond to the tighter monetary policy, then investors would continue to seek out gold as both an inflation hedge and a safety trade. And that's what makes gold interesting right here. For now, the charts suggest that we're in this $4,280, $4,540 trading range. Now, we tested the lower end yesterday and we bounced, right? We held. Now, if we test it again and break it, then the technical picture for gold will deteriorate. But if we hold and then we bust up through $4,540, then the bulls will be back in control. Eco data today includes the Philly Fed Business Outlook. Housing starts expected to be up 6.7%. Building permits expected to be down 1.5%, along with pending home sales, which are expected to be down 3.9% year over year. European markets are higher, all up by about 0.5%. Today it's the UK's turn, right? The Bank of England is expected to announce their monetary policy decision. And as expected, they held rates steady, but they delivered a more hawkish message. Now here, US futures are higher. Dow futures up 360, the S&P's up 65, the NASDAQ's up 312, and the Russell's up 32 points. But now let's keep it real, because year to date, this has not been a disaster at all. The S&P is up 10.3%, the NASDAQ's up 11.7%, and the Russell's up 15.2%, while the equal weight S&P is up 10.5%. This despite everything we've been through— a war in the Middle East, $100-plus oil, inflation, a 5% 10-year, and now the first Fed hike in 3 years, and still investors have been rewarded. Now, the next 4 weeks, well, they're going to be important because we still have to consider the Fed's next move, right, at their October meeting. Every inflation report now matters because every one of them is going to help answer the next question: was yesterday's hike enough for now, or Does Kevvy have to hike again? You know what the market is predicting, but let's see. In 2 weeks, we're gonna get the latest non-farm payroll report. As long as the labor market holds together, the Fed has room to stay focused just on inflation. But if the job market suddenly weakens, which I don't think it's going to, and inflation remains sticky, well, then Kevvy's job gets a whole lot more complicated. We still have the whole, uh, oil in the Middle East debacle to deal with. And yes, crude is backing off this morning, but let's not get too comfortable. We're only one missile or one drone away from damaging another pipeline or another cargo ship or another piece of critical infrastructure. And then suddenly that geopolitical risk premium gets put right back into a barrel of oil. Then we've got the bond market. While the 10-year is now back below 5%, don't assume it's all over yet. There's a huge amount of Treasury supply that's coming to the market, and that will test investor resolve. If demand is there for the bonds and the 10-year continues to retreat, that's great. But if buyers balk and the 10-year flips and then pushes up and through 5% again, then stocks are gonna get slapped in the face all over again. And then comes earnings. JP Morgan and the other big banks, they begin reporting on October 13th. That's literally 3 weeks away, marking the official kickoff of once again, the 3rd quarter earnings season. And that is when the rubber is going to meet the road, because at that point investors are going to stop debating about Kevin Warsh and oil and the 10-year, and they're going to start focusing and asking companies about the stuff that ultimately matters. Essentially, show me the money. That is going to be especially true for the premium, uh, multiple technology and AI names, as it always is. It's going to be even more this quarter. If rates remain elevated, investors are going to become much less forgiving when somebody misses a number, they miss on the margins, or they offer disappointing guidance. We've had a good year so far, but there are plenty of potholes between here and say the middle of October. We haven't even discussed the midterms yet. So stick to your plan. Don't chase stocks. Don't panic and don't get emotional. Remember, know what you own and know why you own it. Confirm your thesis, and then let the investments do the work. Now, the S&P closed yesterday at 7,552. It was down 34 points. Now, keep your eyes on the 7,511 level. That's what we tested yesterday. That is the trendline support. Now, that's not gonna be an issue today with futures pointing higher. We're certainly gonna probably close higher, I would imagine. But that's the level that I want you to watch in the days ahead if the market turns south. Now, the upside, Well, that's the all-time high at 7,800. Watch the 10-year, a pullback towards 4.8% over the next few weeks would be a huge win for stocks and it would take lots of pressure off of valuations. Now, if you'd like to discuss your goals, you know that, evaluate the risk of your portfolio, simply get a second opinion. You can give me a call at 561-931-0190, or better yet, you can go to the site slatestone.com and click on the Connect Us page. And then the email will come right to me because I'm always happy to provide you with a complimentary portfolio and risk assessment review. Okay, so now what are we having for dinner? Well, tonight I'm giving you the seared halibut with white wine and artichokes. It's easy to make. It looks great on the, on the plate when you present it, and it's so good. So you want to start with 4 to 6 pieces of halibut, with or without the skin, depends on what you like. Doesn't make a difference. You can use it either way. Now, on medium heat, you're going to add about 3/4 of a stick of butter, a bit of olive oil, and 2 sliced shallots. You're going to sauté the shallots until they're soft, like 3 or 4 minutes. Now you're going to add in the sliced artichoke hearts and sauté those with the shallots. Yeah, maybe 3 or 4 more minutes, right? You want to turn the heat up, get the pan hot, add the halibut, and sear it on one side, right? Then you're going to flip the halibut and bathe it in the white wine. Bring it to a boil, then reduce heat to medium-low and cover it. Let it steam for about 10 minutes. Then you want to test it just to make sure that it's cooked through to perfection. Now look, you can use artichoke hearts that are either canned or frozen. Doesn't make a difference. Just rinse them, thaw them out, and slice them in half. You want to serve this when it's ready on a warm plate with like steamed French-cut green beans seasoned with olive oil, salt, and pepper, and roasted or roasted butternut squash. As always, you want to include a mixed green salad dressed in this one, maybe a red wine vinaigrette. The colors of the veggies, the green and the yellow, the beans and the squash accented with the whiteness of the halibut really make for an eye-appealing dish, right? It's a sensory stimulating presentation. And you know as well as I do, it's, you know, food tastes delicious, but it's all in the eye, right? What's it look like? How's it present? Because that is your first clue. In any event, it's stormy here in South Florida today. It is dark, very cloudy, and it's getting dark outside. And it's, uh, you know, 7:30 in the morning. It should be nice and sunny, but in fact it's dark and cloudy. And I wonder if that says anything about maybe what we're going to see in the market today. Until tomorrow, take good care.