The New York stock market on Friday, September 25, saw all three major indices rise. The Dow Jones Industrial Average closed at $51,828.62, up $478.64 (+0.93% from the previous day), ending a three-week losing streak. The S&P 500 rose +0.51% to 7,743.41, and the Nasdaq Composite rose +0.50% to 27,068.72.The catalyst was crude oil. Reports surfaced that the US and Iran are exploring a phased agreement toward reopening the Strait of Hormuz (the only exit for Middle Eastern oil to reach the world), causing WTI crude to fall 2.33%. Crude oil is the primary culprit currently driving up US prices. The expectation that if oil prices fall, the Fed (the US central bank) will not need to raise interest rates further, pushed stocks higher.However, the most important number of the day was not the stock price. It was the US 10-year Treasury yield, which barely moved at 5.163%. While stocks felt ‘relieved,’ the bond market remained ‘unconvinced.’ This divergence, where both sides looked at the same news and reached opposite conclusions, captures the essence of the current market. In this article, we will unravel the reason behind this by looking at the ‘two prices’ of oil and delve into the impact on the Tokyo market for Monday, September 28.1. Background: Why are US interest rates at a 19-year high in the 5% range?Conclusion: Current US inflation is ‘oil-driven.’ That is why the Fed shifted to rate hikes rather than rate cuts.The starting point was February 28, 2026, when Iran effectively blockaded the Strait of Hormuz. In April, the international benchmark Brent crude hit $126, its highest level in four years.High oil prices ripple through all prices via transportation costs and electricity bills. The PCE price index, the inflation metric most closely watched by the Fed, was up 3.7% year-on-year for July, and the core index (excluding food and energy) was also up 3.3%, the same as in June. Since the Fed’s target is 2%, the 1.3-point overshoot remains stuck at a high level.Consequently, at the FOMC (the meeting that decides US policy rates) on September 16, the Fed raised the policy rate by 0.25% to 3.75–4.00%. This was the first rate hike in three years since 2023, and it was a unanimous decision with 12 votes in favor and 0 against. The interest rate outlook (dot plot) indicated one more rate hike within the year.If rate hikes continue, bonds are sold (= bond prices fall, and yields rise). Thus, the US 10-year Treasury yield reached the 5% range for the first time in about 19 years, since June 2007.2. Fact: Iran hinted it would ‘open in 7 days’Conclusion: The Iranian side mentioned the reopening of the Strait of Hormuz with conditions, and oil prices fell nearly 8% for the week.The stage was the sidelines of the UN General Assembly. It is reported that Qatar is mediating, and a phased agreement is being explored where Iran would open the strait in exchange for the US lifting the blockade on Iranian oil ports.The decisive factor was the statement by Iranian Foreign Minister Araghchi. On Thursday the 24th, it was reported that he told reporters that if the US meets the conditions of the June interim peace agreement, they would open the strait in 7 days. The fact that a specific number, ‘7 days,’ was mentioned rather than ‘sometime’ moved the market.On the 25th, WTI crude (the US benchmark) closed down 2.33% at $92.41 per barrel, and Brent crude (the international benchmark) closed down 2.14% at $104.32. WTI fell nearly 8% for the week. A typical weekly price movement is around 2–3%, so this was a significant drop, about three times that magnitude.Gold fell over 1% for the week to around $4,280–$4,300 per troy ounce. The dollar-yen pair saw the yen strengthen by more than 1 yen, reaching the 157 yen level.3. Market reaction: Stocks rejoiced, but bonds did not moveConclusion: Stocks were bought not because interest rates fell, but because the ‘worst-case scenario of additional rate hikes’ faded.On days when stocks rise significantly, interest rates usually fall. However, the US 10-year Treasury yield on the 25th rose by less than 1 basis point (0.01%), remaining almost flat at 5.163%. The $478 gain was not a reward for lower interest rates.What stocks bought was the ‘retreat of the worst-case scenario.’ If oil continues to fall, the reason for the Fed to implement a second or third rate hike weakens. The fact that the Dow (+0.93%) outperformed the Nasdaq (+0.50%) is evidence that cyclical stocks, rather than high-tech stocks that benefit from lower interest rates, led the rally.So, why didn’t bonds move? Because there are ‘two prices’ for oil. The difference between Brent and WTI on the 25th was $11.91. This is 2 to 4 times the normal range of about $3–$5. According to the US Energy Information Administration, this level of around $12 is the same magnitude as when it expanded to an 11-year high in March 2026.When the strait is closed, Middle Eastern oil cannot be shipped, and a surcharge (risk premium) is added to the international benchmark, Brent. On the other hand, WTI is oil from the US interior, which has high inventory and limited export capacity, making it cheaper due to domestic circumstances.In other words, the $92 price for WTI is not a ‘price reflecting eased crisis’ but a ‘price reflecting surplus within the US.’ The price that determines global inflation is the $104 Brent side, and the bond market was watching that. Unless this gap narrows, the reopening of the strait is just a headline, not a fact.4. Future outlook: Bullish and bearish, two pathsConclusion: Between now and the FOMC on October 28, there are two hurdles: the PCE on September 30 and the employment statistics on October 2.The bullish path is as follows: If the strait actually opens, Brent will fall, and the gap with WTI will also narrow. Since inflation is energy-based, prices will slow down relatively quickly. It is reported that the market is pricing in an additional rate hike at the October 28 FOMC with a probability of about 65–70%. If this proves wrong, there could be a scenario where both stocks and bonds rise simultaneously.The bearish path is equally realistic. First, the conditions of the June interim agreement have not been met for over three months. Negotiations have repeatedly betrayed expectations, such as when hopes for a reopening receded due to an attack in August.Second, the US composite PMI (an index showing corporate business sentiment) for September rose from 56.0 the previous month to 58.4, the strongest in over five years, but at the same time, the pace of increase in corporate input prices accelerated for the first time in four years. If inflation is spreading from energy to labor costs and service prices, the Fed cannot stop even if oil prices fall. It is reported that Fed Governor Waller also stated in a speech on the 23rd that ‘further policy adjustments’ are expected to return prices to the target. As long as the 5.16% level persists, the upside for stocks will be capped even if earnings are good.5. Consideration of the impact on the Tokyo market on Monday, September 28Conclusion: The 28th (Monday) is the ‘final trading day with rights’ for interim dividends. It is a day where Japan-specific supply and demand are more effective than US factors.This article is written on the morning of Saturday, September 26, Japan time. The Tokyo market closed on Friday, September 25, and the subsequent rise in NY has not yet been priced into Japanese stocks. The next Tokyo market session is Monday, September 28.The Nikkei Stock Average closed at 66,363.99 yen on the 25th, up 850 yen (+1.30%). It rose for five consecutive days, up 1,345 yen for the week. It is reported that buying of financial stocks targeting interim dividends, in addition to semiconductor and AI-related stocks, was effective. However, it is about 6.9% lower than the all-time high of 71,250 yen on June 19, and is in the middle of a recovery from the sharp drop in mid-September.There are three optimistic factors. First, the rise in NY on Friday is not yet reflected. Second, the 28th is the final trading day with rights for interim dividends with a record date of September 30 (because settlement takes two business days). To receive dividends, one must buy by the 28th, creating supply and demand where high-dividend stocks are easily bought. Third, the strength of the US economy is a tailwind for export companies.What should be viewed with caution is the exchange rate. The dollar-yen pair saw the yen strengthen by over 1%, reaching the 157 yen level. A stronger yen is a factor that worsens the profitability of export companies, acting as a headwind for automobiles and machinery. Moreover, this time politics is involved. It was reported that Finance Minister Satsuki Katayama said that President Trump conveyed concerns about the weak yen during his meeting with Prime Minister Sanae Takaichi, and Prime Minister Takaichi responded that a yen that is undervalued as a general theory is a problem. In addition, the yield on Japan’s 10-year government bond is at a multi-decade high of 3.07%, and the Bank of Japan’s policy rate is also at its highest level since 1995 at 1.25%. The direction of narrowing the interest rate gap between Japan and the US will be a structural pressure for a stronger yen.Note that the rise in domestic interest rates is a factor for improving lending margins for banks. It is worth noting that the two buying factors of dividend targeting and rising interest rates overlap.? Today’s forecast (determined before the opening)?Direction of Nikkei Average: Up (expected fluctuation range is about ±400 yen)?Direction of Dollar-Yen: Stronger yen?Focus sector: Banks (Buy)?Confidence level: Medium6. Implications for individual investors in JapanConclusion: Watch two oil prices, do not mistake the dividend drop for a crash, and put three dates on your calendar.1. Also watch ‘Brent’ for oilNews tends to report ‘oil = WTI,’ but it is Brent that determines global prices. What you should watch is the difference between the two. If this gap approaches the normal level of about $5, it is a sign that tensions in the Strait of Hormuz have truly eased, and the stock rally is likely to continue. If it remains open by $10 or more, it is reasonable to suspect that the stock rally is temporary.2. Do not be surprised by the ‘dividend drop’ on Tuesday, September 29Since the 28th is the final trading day with rights, the following day, the 29th, is the ex-dividend date. On this day, the Nikkei Average will mechanically fall by the amount of the dividend. In September 2025, it was about 300 yen. This is a calculated drop, not a negative factor. The most common mistake beginners make is to buy in a hurry on the 28th for dividends and sell in surprise at the drop the next day. You might end up holding a stock that has fallen by several percent just to get a few percent in dividends.3. Keep track of three datesOn September 30, there is the August PCE price index, on October 2, the US employment statistics, and on October 28, the FOMC. The focus is on whether the US 10-year Treasury yield of 5.16% will move toward 5.5% or return toward 4.8%. This single point will largely determine the rise and fall of stock prices over the next few weeks. Make it a habit to check not only the strength of the indicators but also which way interest rates moved after the announcement.This article is for informational purposes only and does not recommend the buying or selling of any specific financial product. Please make investment decisions at your own risk.Sources?Reuters?Bloomberg?CNBC?Yahoo Finance?Axios?S&P Global?US Energy Information Administration (EIA)?FOX Business?NPR?Charles Schwab?Investing.com?Trading Economics?Nihon Keizai Shimbun?Kabutan?Diamond ZAi
