Why tech stocks rose after the Fed’s rate hike

SharpPost Editorial Team | Markets Analysis | October 4, 2026

The tech-heavy Nasdaq outperformed the broader US market last week despite the Federal Reserve’s September rate increase. In the week of September 28–October 2, the Nasdaq Composite gained 0.5%, while the S&P 500 fell 0.3% and the Dow Jones Industrial Average lost 1.3%. The Nasdaq rose 1.2% on Friday after the jobs report, closing at 27,190.86. The Associated Press’s closing figures show a divided market, not a broad rally.

The Fed did not raise rates last week. Its most recent increase came on September 16, when it lifted the federal funds target range by a quarter percentage point to 3.75%–4%. Investors were reassessing what comes next: another increase in October, or more time before the Fed tightens again.

The September increase was widely anticipated. Reuters reported before the decision that futures markets assigned a probability above 90% to a quarter-point hike. An expected increase still raises borrowing costs, but some of its impact may already be reflected in prices. The policy statement and subsequent economic reports can matter as much as the decision itself.

Last week’s data weakened the case for another immediate increase. The Bureau of Labor Statistics reported on October 2 that September nonfarm payrolls grew by just 29,000, with unemployment at 4.2%. Revisions cut the combined July and August gains by 60,000, while average hourly earnings rose only 0.1% month on month. That gave investors less reason to fear an overheating labor market and accelerating wage pressure.

Inflation also came in below expectations. The Bureau of Economic Analysis’s September 30 release put August PCE inflation at 3.4% year on year, with the core measure at 3%. Economists in a Reuters poll had expected a 3.7% headline reading. Inflation remained above the Fed’s 2% target, and the release included annual revisions. One lower-than-expected reading does not establish a sustained slowdown in prices.

New York Fed President John Williams left room for patience in remarks on September 29. After the September policy action, he said officials had time to gather more information. He still considered a further increase potentially appropriate later this year. That was room to wait, not a promise that tightening was over.

By Friday, the futures-implied probability of an October quarter-point hike had fallen to 22.7% from 64.2% a week earlier, according to Kiplinger’s report citing CME FedWatch. Those figures describe market pricing, not a Fed forecast. An immediate follow-up increase was no longer the most likely outcome priced by traders.

Corporate growth offers another reason for technology stocks’ resilience. All else equal, a higher discount rate reduces the present value of future cash flows. Rising earnings expectations can offset some of that pressure. For some of the largest technology companies, the AI infrastructure boom is already generating substantial business rather than merely promising future revenue.

Nvidia’s fiscal 2027 second-quarter results, released in August, showed revenue of $96.2 billion, up 106% year on year, with data-center revenue up 117%. Microsoft’s quarter ended June 30 brought 43% growth in Azure and other cloud services revenue, roughly $55.4 billion in operating cash flow and $35.8 billion in cash spending on property and equipment. These were not new announcements last week, but they help explain the companies’ capacity to keep investing at higher interest rates.

There was fresh company news, too. Nvidia announced on September 28 that its board had added $150 billion to its buyback authorization, bringing the remaining total to $235 billion. The company expects to execute the program through fiscal 2028. That creates the prospect of additional buying, but any support depends on when and how much Nvidia actually repurchases. Authorization is neither completed spending nor protection against a falling share price.

Not every technology company has the same cushion. Profitable businesses can finance some investment from operating cash; companies dependent on fresh funding face a more direct squeeze. AI equipment sales are revenue for suppliers but cash outlays and future depreciation costs for cloud operators. Demand growth still has to translate into adequate returns.

Index construction can also conceal weakness. On September 30, the Nasdaq gained 0.24% while the S&P 500 fell 0.25%. Reuters reported that nine of the S&P’s 11 major sectors declined, even as information technology rose 0.6%. In market-capitalization-weighted indexes, large companies have more influence. Strength in a few technology stocks can offset losses elsewhere without indicating broad market health.

The bond market still presented a constraint. Schwab Network’s Friday closing report put the 10-year Treasury yield at about 5.28%. Longer-term borrowing costs reflect inflation, debt supply and compensation for holding longer-dated bonds, not just the next Fed meeting. Delaying one rate increase would not remove that pressure on equity valuations.

Last week’s divergence suggests that higher rates are not bearing equally on every company. Reduced expectations of further tightening and strong technology businesses helped support relative gains. Slower hiring offered relief from fears of another hike, but could also undermine earnings if it weakens consumption and orders. Sustaining the rally will require profits that can withstand high rates, not simply another Fed increase being pushed back.