*****************************************************************************

* FIEND'S SUPERBEAR MARKET REPORT *

* September 18, 2026 *

* *

* e-mail: fiendbear@fiendbear.com *

* web address: http://www.fiendbear.com *

*****************************************************************************

Fiend Commentary
================

Everybody Wins—for Now

Apparently one quarter-point hike fixes everything.

At least for a day.

Stocks rallied sharply Thursday.

Treasury bonds rallied.

Gold rallied.

Silver rallied.

Bitcoin recovered.

The dollar gave back some of Wednesday's surge.

Even oil finally backed away from its recent highs.

It was almost the perfect market.

The S&P 500 gained 1.1%, the Dow added 316 points and the Nasdaq jumped 1.7%. The 10-year Treasury yield, which had stubbornly remained near 5% even after Wednesday's rate hike, dropped back to roughly 4.94%.

Gold climbed more than 2%.

Silver jumped more than 4%.

Bitcoin also recovered.

For a Federal Reserve that had spent the past week watching virtually every market move in the wrong direction, Thursday must have felt pretty good.

There is just one problem.

These markets aren't necessarily telling the same story.

If Wednesday's rate hike convinced investors that Kevin Warsh has suddenly become the second coming of Paul Volcker, gold, silver and Bitcoin are strange places to celebrate.

Something else may be going on.

One Day of Credibility

Wednesday's quarter-point increase accomplished something important.

It demonstrated that the Fed was finally willing to act.

That mattered.

For weeks, the bond market had been openly challenging the central bank. The 10-year Treasury yield rose through 5%, the 30-year approached 5.4%, and markets increasingly priced a rate increase whether Warsh liked it or not.

Then Warsh delivered.

The vote was unanimous.

The Fed increased rates to 3.75%-4.00%.

Warsh followed with his toughest inflation language yet.

Fed projections indicated another rate increase before year-end.

For once, WACO didn't chicken out.

Bond investors gave him some credit Thursday.

The 10-year yield dropped about seven basis points from Wednesday's close, falling below the psychologically important 5% level.

The 30-year also backed away from its recent highs.

That is exactly the reaction the Fed wanted.

But before declaring victory, consider where we are.

A 10-year Treasury yield of 4.94% would have been considered alarmingly high only a few months ago.

Thursday's bond rally didn't reverse the enormous increase in yields that preceded it.

It merely moved the 10-year from slightly above 5% to slightly below 5%.

That is relief.

It isn't surrender.

Wall Street Decided It Could Live With It

Stocks reached a similar conclusion.

Wednesday's initial reaction to the Fed was ugly because Warsh sounded considerably more hawkish than investors expected.

By Thursday, Wall Street had apparently reconsidered.

The economy remains strong.

Employment remains strong.

Corporate earnings remain strong.

Oil retreated.

Bond yields came down.

And a 25-basis-point rate increase suddenly didn't look particularly frightening.

The S&P erased Wednesday's decline and considerably more.

Technology led the rebound, with the Nasdaq rising nearly 1.7%.

That may tell us something about how seriously investors are taking the threat of a prolonged tightening cycle.

If Wall Street truly believed rates were heading sharply higher for an extended period, highly valued technology stocks would not necessarily be the first place one would expect money to rush.

Instead, investors bought the dip.

Again.

Reuters quoted one investment manager describing Thursday's thinking rather neatly: perhaps Wednesday's hawkishness was "more talk than anything."

That may eventually prove unfair to Warsh.

But markets don't award points for speeches.

They watch what central banks actually do.

So far the Fed has raised rates once.

By 25 basis points.

Gold Didn't Get the Memo

The precious metals were even more interesting.

Gold rose more than 2% Thursday to around $4,360.

Silver jumped approximately 4.2% to $65.60.

That is a remarkable response one day after the Federal Reserve raised interest rates and warned that additional tightening could be coming.

Normally, higher interest rates create a problem for precious metals.

Gold pays no interest.

Neither does silver.

When Treasury securities offer higher real returns, the opportunity cost of holding metals rises.

Wednesday appeared to follow that textbook.

The dollar jumped.

Bond yields remained high.

Gold fell sharply.

Then Thursday arrived and much of the move reversed.

There were perfectly ordinary reasons.

The 10-year yield fell.

The dollar weakened.

Oil backed off.

All three helped gold.

But there is another possibility worth considering.

Investors may not be convinced that the Fed can—or will—tighten enough to get ahead of inflation.

One quarter point does not change the fiscal picture.

It does not change $40 trillion of federal debt.

It does not shrink the Fed's balance sheet.

It does not end the war.

It does not return oil to $70.

It does not bring CPI back to 2%.

And it certainly doesn't reverse years of accumulated inflation.

Gold investors know that.

Apparently silver investors do too.

Bitcoin Votes Too

Then there is Bitcoin.

Bitcoin isn't gold.

It isn't a commodity in the traditional sense, and its behavior can be driven by everything from liquidity and regulation to leverage and speculation.

But it has increasingly traded as another asset sensitive to monetary conditions.

Higher real yields and a stronger dollar have generally been difficult for crypto.

Lower yields and easier liquidity generally help.

Bitcoin recovered Thursday along with metals and stocks.

That makes the day's market message even more interesting.

Stocks liked the stronger economy.

Bonds liked the Fed's inflation stance.

Gold and silver liked lower yields.

Bitcoin liked the renewed willingness to take risk.

Everybody found something to like.

Markets occasionally produce days like that.

They usually don't last forever.

Eventually the different narratives have to reconcile.

October Suddenly Isn't Certain

Wednesday's Fed projections suggested another rate increase before the end of the year.

That sounded hawkish.

But markets aren't convinced it will happen immediately.

By Thursday, Fed funds futures were assigning only about a 53% probability to another quarter-point increase at the October meeting.

That is basically another coin toss.

Think about how quickly we got back here.

Tuesday:

A September hike was nearly 95% certain.

Wednesday:

Warsh delivered it and talked tough.

Thursday:

The market was already debating whether he would follow through next month.

WACO may have been temporarily suspended.

He hasn't been permanently retired.

There is a considerable difference between raising rates once after the Treasury market has essentially forced your hand and embarking upon a sustained tightening cycle.

Wednesday proved Warsh is willing to do the first.

We still don't know whether he will do the second.

The Fed Versus the Market

This is where monetary policy gets complicated.

The Fed wants financial conditions tight enough to slow inflation.

Markets want to anticipate when the tightening ends.

The instant investors believe they can see the end, they start easing financial conditions themselves.

Bond yields decline.

Stocks rise.

Credit spreads narrow.

The dollar weakens.

Gold rises.

Crypto rises.

Asset prices increase.

In other words, the Fed tightens monetary policy Wednesday...

and the markets start loosening financial conditions Thursday.

Central bankers hate this.

It is one reason Fed officials often continue talking hawkishly even after raising rates.

They aren't only trying to influence economists.

They are trying to prevent Wall Street from immediately undoing their work.

Warsh may discover that problem very quickly.

Seven Basis Points Isn't Victory

The 10-year Treasury dropping from roughly 5.01% to 4.94% certainly helps.

But let's maintain some perspective.

Seven basis points is noise compared with the move that brought us here.

The bond market has spent months repricing several risks simultaneously:

Inflation.

Oil.

Federal borrowing.

Fiscal deficits.

The enormous supply of Treasury securities.

The end of quantitative tightening.

And uncertainty over whether the Fed is willing to keep monetary policy sufficiently restrictive.

Wednesday addressed exactly one item on that list.

Warsh showed that the Fed will raise rates.

Good.

Now bond investors want to know how far.

The Fed's own projections suggest another increase this year.

Futures markets are pricing more tightening beyond that.

But if the 10-year moves back above 5% next week, Thursday's relief rally will look like little more than short covering.

Five percent remains the line to watch.

Oil Gave Everyone a Present

Thursday's biggest help may not have come from Warsh at all.

It came from oil.

Brent crude fell about 1% to $104.82, after Saudi Arabia reportedly found additional ways to move crude through Oman.

WTI also moved lower.

That eased immediate concerns about supply disruptions and gave virtually every other market room to breathe.

Lower oil helps stocks.

Lower oil helps bonds.

Lower oil reduces inflation expectations.

Lower inflation expectations take pressure off the Fed.

Lower Treasury yields help gold.

Lower yields also help highly valued technology stocks.

For one day, everybody benefited.

But $105 oil is still $105 oil.

The Middle East war hasn't ended.

Supply routes remain vulnerable.

And crude remains dramatically higher than it was before the latest escalation.

One or two down days in petroleum don't erase the inflation that is already working through gasoline, diesel, transportation and production costs.

We have seen this movie several times during the year.

Oil falls $3.

Markets celebrate the end of the crisis.

Then another missile flies.

The Inflation Pipeline Is Still Full

Perhaps the biggest mistake investors could make now is assuming that Wednesday's hike addresses inflation that hasn't even arrived in the data yet.

August CPI was 3.4%.

But much of the latest oil surge occurred after the period covered by that report.

Import prices are already rising at a 7% annual rate.

Producer prices are up 5.4%.

Diesel prices have surged.

Transportation costs are increasing.

Those eventually work downstream.

The Fed therefore faces a peculiar timing problem.

It has finally begun raising rates in response to inflation already visible in the data just as another inflation impulse may be entering the pipeline.

Twenty-five basis points could therefore prove to be exactly what we suggested earlier this week:

Too little, too late.

Or oil could collapse next month and make Warsh look brilliant.

That uncertainty is why October remains a coin toss.

Higher for Longer May Matter More Than Higher

There is also another possibility.

Perhaps Warsh doesn't need to raise rates repeatedly.

Perhaps he simply needs to convince markets that rate cuts aren't coming back.

That would still represent an enormous change from January.

The year began with Wall Street expecting multiple rate cuts.

Today the federal funds rate is higher than it was when the year began, and the Fed's median forecast shows no net easing through the end of 2027.

That is a very different world.

A central bank doesn't always need to push rates dramatically higher if it can convince investors that existing rates will remain in place for a long time.

The problem is convincing them.

Gold at $4,360 doesn't exactly scream confidence in long-term monetary discipline.

Silver jumping 4% doesn't either.

Bitcoin recovering alongside both doesn't help the argument.

Again, none of those assets provides a clean referendum on the Federal Reserve.

Gold had help from falling yields and a softer dollar.

Silver has industrial demand.

Bitcoin has its own ecosystem.

But taken together, they suggest that investors are nowhere near ready to declare the inflation trade dead.

The Great Disconnect Returns

There is also something familiar about Thursday's action.

Earlier this year we repeatedly discussed the Great Disconnect.

Asset prices kept rising despite an economic and fiscal backdrop that looked increasingly unstable.

Thursday offered another version.

The Fed raised rates because inflation is too high.

Stocks rallied.

The federal debt is above $40 trillion.

Treasuries rallied.

The Fed warned of additional tightening.

Gold rallied.

Inflation remains more than a percentage point above target.

Silver rallied.

The Fed chairman emphasized monetary restraint.

Bitcoin rallied.

Maybe everyone is right.

The economy could remain strong enough to support stocks.

The Fed could regain enough credibility to support bonds.

Fiscal and geopolitical risks could support precious metals.

Liquidity and speculative demand could support Bitcoin.

There is no rule saying those things can't coexist for a while.

But there is an obvious contradiction underneath them.

Something eventually has to give.

Warsh Has Six Weeks

The next Fed meeting is in late October.

That gives Warsh several weeks of data before deciding whether Wednesday was the beginning of something—or the end.

He will get another CPI report.

Another PPI report.

More employment numbers.

More information about the economic effects of the war.

And, perhaps most importantly, more information from the Treasury market.

If the 10-year stays below 5% and gradually retreats, Warsh can argue that one hike plus hawkish guidance restored some credibility.

If inflation stabilizes, he can wait.

If oil falls substantially, the pressure diminishes further.

But if CPI moves toward 4%...

If oil returns toward $110...

If the 10-year breaks through 5% again...

Then October gets considerably more interesting.

Another 25 basis points begins to look less optional.

Don't Declare Victory Yet

Thursday was a good day for the Federal Reserve.

There is no reason to pretend otherwise.

Stocks recovered.

Bond yields declined.

Oil eased.

The dollar backed away from Wednesday's surge.

Markets absorbed the first rate increase in more than three years without anything breaking.

That is about as good an outcome as Warsh could have wanted.

But the celebrations should probably remain modest.

The 10-year is still near 5%.

Oil is still above $100.

Inflation is still 3.4%.

Producer inflation is considerably higher.

Federal borrowing remains enormous.

And the assets investors traditionally buy when they are worried about currency debasement, inflation or excessive liquidity didn't stay down for long.

Gold bounced.

Silver bounced harder.

Bitcoin came back too.

The Fed finally raised rates.

The markets noticed.

They just aren't convinced yet that one quarter point changes the story.

---

Weekly Market Summary Page
[Return to the Fiend's SuperBear Page]