U.S. stocks closed lower on Wednesday after the Federal Reserve raised its benchmark interest rate by 25 basis points to a range of 3.75%-4.00%, marking the first rate hike in three years and the first under Fed Chair Kevin Warsh. Warsh expressed dissatisfaction with the current pace of inflation, stating that price stability remains the central focus of the Fed's mandate. "The plain fact is inflation is too high and has been for too long," he said at the post-meeting press conference.

The Dow Jones Industrial Average fell 1.21%, while the S&P 500 declined 0.44% and the Nasdaq Composite slipped 0.01%. In terms of individual movers, Intel gained 4.03%, Ciena advanced 1.91%, Coherent Corp jumped 6.81%, Lumentum Holdings surged 9.59%, and CoreWeave added 3.00%. Among the "Magnificent Seven," Meta Platforms rose 0.46%, Google slipped 0.61%, NVIDIA gained 0.82%, Apple edged up 0.32%, Tesla rose 0.42%, while Amazon lost 0.99% and Microsoft declined 1.37%.

On the economic data front, the U.S. Consumer Price Index for August showed a year-over-year slowdown, easing from a recent peak of 4.2%. The monthly CPI rose 0.4% as expected, but core CPI, which excludes volatile food and energy components, increased 0.3% month-over-month, coming in above consensus forecasts.

Brent Wilson, chief investment officer at San Diego-based Wilson Asset Management, wrote in a Wednesday research note that maintaining rates unchanged could have disruptive consequences. "It would surprise equity markets, which typically don't welcome unexpected developments, and it would also damage the Fed's credibility, reigniting concerns that the central bank is bowing to political pressure to stay on hold." The White House had pushed for the Fed to keep rates steady, creating a challenging backdrop for Wednesday's decision.

Wilson highlighted diesel prices as one of the most intractable inflation issues. "Rising diesel costs can push up expenses across transportation, agriculture, shipping, and many other parts of the economy. While a rate hike won't directly lower diesel prices, higher interest rates can suppress inflation in other areas of the economy, offsetting the inflationary pressure from energy costs."

International oil prices fell sharply on Tuesday. West Texas Intermediate crude for October delivery dropped $3.40 to settle at $102.43 per barrel, a decline of 3.21%, while Brent crude for November delivery lost $2.92 to close at $105.83 per barrel, down 2.69%.

Jefferies issues bullish call, predicting the S&P 500 could surge to 8,000 points by year-end and reach 9,000 by 2027, driven by the twin engines of an AI investment boom and better-than-expected corporate earnings growth. The report argues that despite macro headwinds including rising 10-year Treasury yields, sticky inflation, and midterm elections, corporate fundamentals remain the core driver of returns. Jefferies' central thesis is clear: in a cycle where earnings growth exceeds historical averages by more than two times, fighting the earnings trend is dangerous. Additionally, the firm believes AI-driven earnings expansion is broadening from the Magnificent Seven to the wider market, providing a more solid foundation. Jefferies recommends focusing on overweight positions in technology, financials, healthcare, and materials sectors that show strong earnings revisions and macro support, urging investors to seize this rare earnings supercycle amid valuation contraction concerns.

However, Jefferies also flagged two key risks in its report: first, a material slowdown in AI-related earnings growth would directly undermine the entire bull market thesis; second, persistently rising 10-year Treasury yields could exert systematic pressure on equities through valuation compression channels.

Meanwhile, Wells Fargo lowered its S&P 500 year-end target. Chief Equity Strategist Ohsung Kwon cut the index target from 7,950 to 7,700 and downgraded the technology sector from "overweight" to "equal weight," citing the upcoming midterm elections as a growing risk for the sector, particularly amid intensifying opposition to data center development. Kwon has grown increasingly concerned that years of earnings expansion have pushed market expectations near record highs, while AI capital expenditures, state-level policy restrictions on data center construction, and fiscal and monetary policy uncertainty continue to escalate. Notably, the strategist expressed limited concern about 2027 earnings but warned that a slowdown in AI data center-related capital spending could impact 2028 profits. As such, this adjustment reflects a reassessment of the market's longer-term growth and valuation outlook. Separately, strategist Ed Yardeni slashed his S&P 500 year-end target from 8,400 to 7,900, setting a mid-2027 target of 8,400.

The world's best-performing sovereign wealth fund issued a warning that U.S. stocks may be due for a correction. Jo Townsend, CEO of the New Zealand Superannuation Fund, which manages US$54 billion in assets, acknowledged the fund's stellar 2026 performance but cautioned that the high returns equity investors have enjoyed in recent years will likely revert. "Annualized returns from U.S. stocks over the past few years have been nearly double the annualized returns of the past two decades," she said in a statement accompanying the performance announcement. "Therefore, we expect mean reversion at some point." Townsend's cautious outlook echoes recent warnings from the head of Norway's sovereign wealth fund, the world's largest. Nicolai Tangen, CEO of Norges Bank Investment Management, said in an interview last month: "We shouldn't expect to replicate the returns of the past six months going forward."