Technology resilience contrasts with pressure from higher yields and US$100 oil

US equities ended a volatile week with sharply divergent performance across the major indices. The divergence captures the week’s central theme. Technology and semiconductors remained relatively resilient, but the broader market faced a more difficult macro environment as the Federal Reserve raised rates, the 10-year Treasury yield returned to 5%, and oil remained above US$100.

The Federal Reserve Begins Tightening

The week’s defining event was Wednesday’s Federal Reserve meeting.

The Fed unanimously raised the federal funds target range by 25 basis points to 3.75% – 4.00%, its first rate increase since July 2023. More importantly, the updated projections showed the median policymaker expecting one additional 25-basis-point increase before year-end.

Chair Kevin Warsh emphasised that the economy remains resilient while inflation is still too high. The Fed expects PCE inflation of approximately 3.7% in 2026, materially above its 2% objective. Warsh also highlighted solid labour conditions, strong capital investment and persistent geopolitical pressures.

This matters because the debate has now changed.

Investors are no longer asking whether the Fed will resume tightening. The question is how far the tightening cycle will extend.

Markets currently assign roughly even odds to another increase at the Fed’s October meeting, while the Fed’s own projections point towards another move before year-end.

The 10-Year Treasury Reaches 5%

The bond market remains equally important.

The 10-year Treasury yield finished the week around 5%, while the two-year yield reached its highest closing level since mid-2024.

Warsh offered an interesting explanation for the rise in longer-term yields. He pointed not only to economic strength, but also to increased competition for capital, particularly as hyperscalers raise enormous amounts of financing for AI infrastructure. Geopolitical uncertainty represents a third source of upward pressure.

That connection between AI investment and interest rates deserves attention.

The AI build-out is supportive for semiconductor and infrastructure earnings, but the sheer scale of capital expenditure also increases demand for financing. At the margin, this may contribute to higher borrowing costs across the economy.

For equity investors, therefore, AI investment has two effects: it creates extraordinary earnings opportunities for certain companies while potentially contributing to a higher discount-rate environment.

Semiconductors Defy the Broader Pressure

Technology was the clear relative winner.

Semiconductor stocks rallied strongly late in the week as investors returned their attention to tight chip supply and resilient data-centre demand. On Thursday, Intel gained 7.7%, Micron rose 5.5%, Nvidia advanced 2.5%, AMD gained 6.5% and Arm surged 8.6%. The iShares Semiconductor ETF rose approximately 3.4%.

Intel provided an important catalyst after CEO Lip-Bu Tan indicated that the company can currently satisfy only around half of customer CPU demand and warned that the global memory shortage could worsen next year.

The message is significant.

Recent concerns have focused on whether AI capital expenditure is becoming excessive. Yet supply constraints across processors and memory suggest that underlying demand remains robust.

This helps explain why the Nasdaq managed to finish the week higher despite the Fed hike and rising Treasury yields.

The market is increasingly differentiating between companies with direct exposure to constrained AI infrastructure and the broader equity universe.

Oil Remains the Principal Geopolitical Risk

Energy markets remain the largest external threat to the inflation outlook.

Brent crude finished Friday at approximately US$104.87 per barrel, while WTI closed at US$100.30. Prices eased on Friday after China reportedly urged Iran to use its influence to restrain Houthi attacks on Saudi oil infrastructure.

However, the underlying geopolitical situation remains highly uncertain.

Houthi attacks have damaged Saudi energy infrastructure, including the strategically important East-West pipeline, while the Strait of Hormuz remains heavily disrupted. Iran also said Friday that it had struck an oil tanker attempting to transit the Strait.

The simultaneous pressure on Hormuz and the Bab el-Mandeb shipping route is particularly important because both are critical channels for global energy flows.

Oil is therefore no longer merely a sector-specific issue. At above US$100, it directly affects inflation expectations, consumer purchasing power, corporate margins and ultimately Federal Reserve policy.

Growth Remains Positive, But Momentum Is Moderating

Economic data remain broadly consistent with expansion rather than recession.

The Conference Board’s Leading Economic Index declined 0.1% in August, its first monthly decline since March. Its six-month growth rate also turned marginally negative. However, the Coincident Economic Index continued to rise, indicating that current economic activity remains positive.

Manufacturing provided a softer signal. US factory production unexpectedly declined in August, with higher energy costs and rising interest rates presenting potential headwinds for the sector.

The overall picture is therefore becoming more nuanced: the economy remains resilient enough for the Fed to tighten, but some forward-looking indicators suggest that growth may gradually moderate.

What to Watch Next (Beginning 21 September 2026)

The coming week should help determine whether markets can stabilise after the Fed’s first increase.

Investors will receive September preliminary PMI surveys, jobless claims, durable goods orders and consumer sentiment data. These releases will provide an early indication of how US$100 oil and higher borrowing costs are affecting business activity and households.

Federal Reserve communication will also be important. Following Wednesday’s increase, investors will scrutinise policymakers’ comments for clues as to whether another hike is likely in October or whether the Fed prefers to wait for additional inflation data.

Geopolitics remains the largest wildcard. Any sustained improvement in shipping through Hormuz or progress towards de-escalation could lower oil prices and ease pressure on bond yields. Further disruption would reinforce the opposite scenario.

The market therefore enters next week with a clear tension.

AI earnings and investment remain powerful supports for technology. But 5% Treasury yields, US$100 oil and a Federal Reserve that has begun tightening materially raise the hurdle for the broader market.

For now, the strength of the Nasdaq relative to the Dow and Russell 2000 suggests that investors are still willing to take risk but increasingly only where earnings visibility is strong enough to justify it.