The Fed raised rates a quarter point last week, to 3.75%-4.00%. It’s the first hike since 2023,and the reason is simple: inflation won’t come down and the economy keeps holding up. Stockstook the hike in stride. What rattled them was the 10-year Treasury, which pushed brieflyabove 5% and put valuations under pressure.

Monday morning is a bit easier. Oil is down sharply, the 10-year is back near 4.95%, and techand AI names are bouncing. That helps, but nothing underneath has changed. Inflation is stilltoo high, the economy is still growing, and AI spending plus government borrowing is soakingup a lot of capital. The Fed has already tightened. What matters now is how much more theeconomy and stock valuations can take.

Three things we are watching this week:

1. The 10-year yield.

It’s sitting around 4.95%, and 5% is the level everyone’s watching. If it stays below, stocks get room to run. If it breaks back above, valuations are the story again. The AI buildout is part of this. All the money going into data centers and chips, plus Treasury issuance, is keeping longer-term yields high. AI and semiconductor stocks can bounce this week, but they’ll need real earnings and cash flow to back up their prices.

2. Oil.

Oil. Brent and WTI both slipped back below $100 after nearing $110 last week. Cheaper energy eases inflation worries, which helps yields and takes some heat off the Fed. If crude climbs back over $100, those worries return.

3. What the Fed does next.

What the Fed does next. Was September a one-time move or the first of several? Fed officials are speaking all week, and we get September PMIs, jobless claims, housing data, durable goods and consumer sentiment. Strong numbers help earnings, but if growth stays hot while inflation stays high, the Fed has more reason to hike again. If oil keeps falling, yields ease and earnings hold up, that’s a decent backdrop for stocks. If oil goes back over $100, the 10-year stays above 5% and another hike starts to look likely, it gets a lot harder.

The economy isn’t cracking, and corporate profits aren’t either. Stocks have shown they canhandle higher rates. This week is about whether they can keep going with rates staying wherethey are.

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