Yields Surge, The Fed vs. Oil, and a Predictions Pop 9/15/26

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This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com or find Schwab Market Update wherever you get your podcasts.

Kelly Evans (1:02)

Thank you very much, Scott. Stocks are down again today as the 10-year treasury yield goes back above 5%.

It's right below those levels this hour, though. I'm Kelli Evans, and welcome to The Exchange. Yields are piercing 20-year highs today as the Federal Reserve begins its policy meeting. And as oil prices rise again, take a look at WTI, now breaching 106 a barrel. The Fed is widely expected to raise rates tomorrow. We'll ask David Zervos if that will push long-term rates up or down, and what the fallout might be. Plus, do AI labs need antitrust immunity if they want to act together to slow down? We'll talk to former DOJ official Jonathan Cantor about that. And it's not just the number of points that is soaring so far this NFL season. The amount of bets and prediction markets is also almost doubling from a year ago.

JB. Patenzie of Robinhood is here with that story. But we begin with this looming decision from the Federal Reserve tomorrow. If they do raise rates, it will be the first time since the summer of 2023 And it will follow six rate cuts since then. Does the economy actually need rate hikes right now? Is this an effort to just bring down longer term treasury yields? Or are those hikes themselves the reason that yields have been on the rise? Let's debate all of this with David Zervos. He's the chief market strategist at Jefferies. And a CNBC contributor. And David, a lot of people are making the point that rate hikes rarely happen in isolation. Usually, there's four coming. So it is a big deal if this is the end of the cutting cycle and the start of a tightening cycle, not least because rate cuts were one of the things that was supposed to be underpinning the bull market.

David Zervos (2:36)

Yeah, Kelly, I think that's probably a fair assessment of history. But the bull market has done pretty well. And we've just priced in a lot more rate hikes than anybody thought, or very few people had thought possible at the beginning of the year. So I think the most important theme of all in markets is just how resilient risk assets have been. They've been resilient to oil prices, which continue to rise up to these new highs every day almost and hold them for a much more sustained period than people thought. And the interest rates that have come along with that, largely, I think, because of the oil price in many ways, people have pushed that expectations. But here we sit up, what, 12% total returns on the year for the S&P.

It's a pretty unbelievably resilient risk asset market, I must say.

Kelly Evans (3:19)

That would be making the case for rate hikes. It would be saying, look, the market's practically egging you on, and yet I know you think that the Fed might be getting ahead of itself by hiking. So explain.

David Zervos (3:30)

Well, I try not to do too much of what I think the Fed should do, and it's what I think the Fed will do. Given the seat that I'm in, I'm trying to help our clients, your viewers, navigate that, and I think they have backed themselves into a corner here. I think the odds are actually a little too high. I wouldn't certainly put 96 down to make 4 cents or 92 down to make 8 cents. I think that's a pretty bad bet, and I think the bet's probably actually much closer to a 60-40 or 65-35 bet to be honest with you, as there is a chance that they did something a little out of the ordinary and didn't go. But I think that's not a huge story here. The huge story is really much more on the risk asset space, and how largely irrelevant this reset in rates has been to that economic outcome, and actually the economic data as well. The economic data continue to show very resilient strength even with this rate rise. The Atlanta Fed I think was just highlighted by the Secretary of the Treasury as coming out at much higher levels, and even the survey of professional forecast in the mid-2s.