Fed's Rate Hike Leaves Investors Bracing for More

The Federal Reserve's decision to raise interest rates by a quarter percentage point has left investors bracing for more. The move, which took place on September 16, lifted the benchmark rate to 3.75 percent-4.00 percent in an effort to combat persistently above-target inflation.

Bond yields pulled back on September 17 after a prolonged rise that had partly reflected concerns over whether the Fed would act. Some investors believe higher rates could make rate-sensitive assets, such as small-cap stocks, less attractive.

Fed Chair Kevin Warsh's decision to raise interest rates was seen as hawkish by some, but others noted that it added trust to the market. 'It does make them look independent...it adds trust to the market,' said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments.

Investors are now considering how to position their portfolios in a higher-rate environment. Some, like Phil Blancato, chief market strategist at Osaic, believe reducing duration and trimming some small-cap exposure could make sense if this is the start of a hiking cycle.