Stocks Finish Sharply Higher on Reduced Fed Rate Hike Chances

The S&P 500 Index ($SPX) (SPY) closed up by +1.06% on Thursday, the Dow Jones Industrial Average ($DOWI) (DIA) closed up by +1.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +1.16%.  E-mini S&P futures (ESU26) rose +1.00%, and September E-mini Nasdaq futures (NQU26) rose +1.15%.

Stocks settled sharply higher on Thursday as dovish comments from Fed Governor Waller knocked bond yields lower and reduced the chance of a Fed rate hike later this month.  The 10-year T-note yield fell -2 bp to 4.76% after Mr. Waller said underlying inflation is better than core numbers suggest and he will support keeping interest rates steady if next week’s inflation news shows “continued progress toward our 2% goal.” Mr. Waller’s comments reduced the chance of a Fed rate hike at the Sep 15-16 FOMC meeting to 52% from 65% before he spoke.

Stocks also found support from Thursday’s US economic news, including weekly jobless claims that showed a stable labor market, and the Aug ISM services index that showed service activity unexpectedly expanded at the strongest pace in 6 months.

Stocks are being undercut by rising crude oil prices that have bolstered concerns that the Fed may have to keep raising interest rates to stifle inflation.  WTI crude oil climbed to a new 6-week high on Thursday as the US-Iran conflict continues with no end in sight.

US weekly initial unemployment claims rose +2,000 to 206,000, close to expectations of 205,000, showing a stable labor market.

US Q2 nonfarm productivity was left unrevised at +1.4%, but Q2 unit labor costs were revised lower to +1.2% from the previously reported +1.3%. 

The US Aug ISM services index unexpectedly rose +1.3 to a 6-month high of 55.4, stronger than expectations of no change at 54.1.  The Aug ISM price paid sub-index unexpectedly rose +2.3 to a 4-year high of 72.6, stronger than expectations of a decline to 70.0. 

Fed Governor Christopher Waller said underlying inflation is better than core numbers suggest, and his decision on interest rates at this month's FOMC meeting will be "heavily influenced" by August inflation data due next week.  He added, "If there is continued progress toward our 2% goal, I am willing to support holding the policy rate at its current level.  However, if inflation comes in hot, I will consider a rate hike."

Oct WTI crude oil prices (CLV26) climbed to a fresh 6-week high on Thursday amid signs of tighter global oil supplies. Data compiled by Bloomberg, Kpler and Vortexa showed that Saudi Arabia's Aug crude exports dropped to about 3 million bpd, the lowest amount in 9 years.  Also, hostilities have escalated this week between the US and Iran, dampening hopes that the Strait of Hormuz will be fully reopened anytime soon.   The US carried out several rounds of strikes against Iran this week, targeting radar systems and mine-laying capabilities along Iran's southern coast.  Iran retaliated with drone and missile attacks on US bases across the Middle East.  On the bearish side for crude oil prices, President Trump said the US controls the Strait of Hormuz and, “We’re taking out 30, 40 boats a night, and a lot of oil is coming out of there.”  Also, CNN reported that the US military escorted 40 vessels carrying 18 million bbl of oil through the Strait of Hormuz on Tuesday.

Q2 earnings results are a bullish factor for stocks.  The S&P 500 is tracking for earnings growth of almost +32% in Q2, well above projections of +23%, and nearly four times the average earnings growth rate outside of the Covid period since Q4 of 2013, according to Bloomberg Intelligence.  AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2.  So far, earnings results have been positive, with 86% of the 493 S&P 500 companies that have reported Q2 earnings beating estimates, according to Bloomberg data. 

The markets are discounting a 52% chance of a +25 bp rate hike at the next FOMC meeting on September 15-16.

Overseas stock markets settled mixed on Thursday.  The Euro Stoxx 50 closed up +0.32%.  China's Shanghai Composite closed up +0.02%.  Japan's Nikkei-225 Stock Average fell to a 4-week low and closed down -0.17%.

Interest Rates

December 10-year T-notes (ZNZ6) closed up by +8 ticks on Thursday.  The 10-year T-note yield fell -1.6 bp to 4.762%.  T-notes moved higher on Thursday on dovish comments from Fed Governor Waller, who said underlying inflation is better than core numbers suggest.  Mr. Waller’s comments caused the markets to reduce the chances for a Fed rate hike later this month to 52% from 65% before he spoke. T-notes added to their gains after Q2 unit labor costs were revised lower.  

Gains in T-notes were limited as strength in stocks reduced safe-haven demand for government debt.  Also, WTI crude oil prices rose to a 6-week high, boosting inflation expectations that are hawkish for Fed policy.  The 10-year breakeven inflation rate rose to a 2-week high of 2.364% on Thursday. Also, the unexpected increase in the Aug ISM price paid sub-index to a 4-year high signals price pressures in the service sector, a hawkish factor for Fed policy.

European government bond yields moved lower on Thursday.  The 10-year German bund yield fell -3.3 bp to 3.343%.  The 10-year UK gilt yield fell -9.6 bp to 5.134%.

Eurozone July PPI rose +1.6% m/m and +5.8% y/y, stronger than expectations of +1.3% m/m and +5.5% y/y.

The Eurozone Aug S&P composite PMI was revised downward by -0.1 to 53.0 from the previously reported 52.1.

Markets are discounting a 100% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.

US Stock Movers

The Magnificent Seven technology stocks moved higher on Thursday, supporting gains in the overall market.  Tesla (TSLA) closed up more than +5%, and Meta Platforms (META) and Microsoft (MSFT) closed up more than +2%.  Also, Alphabet (GOOGL), Apple (AAPL), Amazon.com (AMZN), and Nvidia (NVDA) closed up more than +1%. 

Cryptocurrency-exposed stocks rose sharply on Thursday after Bitcoin (^BTCUSD) surged more than +5%.   Strategy (MSTR) closed up more than +17% to lead gainers in the Nasdaq 100, and Robinhood Markets (HOOD) closed up more than +16% to lead gainers in the S&P 500.  Also, Circle Internet Group (CRCL) closed up more than +16%, and Riot Platforms (RIOT) closed up more than +13%.  In addition, Galaxy Digital Holdings (GLXY) and MARA Holdings (MARA) closed up more than +10%, Coinbase Global (COIN) closed up more than +9%, and Iren Ltd (IREN) closed up more than +5%. 

Software stocks rallied on Thursday, a positive factor for the broader market.  Palantir Technologies (PLTR) closed up more than +7%, and ServiceNow (NOW) closed up more than +6%.  Also, Oracle (ORCL) and Thomson Reuters (TRI) closed up more than +5%, and Atlassian Corp (TEAM) closed up more than +4%.  In addition, Workday (WDAY) closed up more than +3%, and Adobe Systems (ADBE), Datadog (DDOG), and Salesforce (CRM) closed up more than +2%.

Defensive food producers closed lower on Thursday with the rally in the broader market.  General Mills (GIS) closed down more than -3%, and Kraft Heinz Co (KHC) closed down more than -3% to lead losers in the Nasdaq 100.  Also, McCormick & Co (MKC) and J M Smucker (SJM) closed down more than -2%, and Hershey Co (HSY), Hormel Foods (HRL), and Mondelez International (MDLZ) closed down more than -1%.

Snowflake (SNOW) closed up more than +15% after reporting Q2 revenue of $1.55 billion, above the consensus of $1.49 billion, and forecasting Q3 revenue of $1.588 billion to $1.593 billion, higher than the consensus of $1.510 billion.

Netskope (NTSK) closed up more than +3% after reporting Q2 annual recurring revenue of $899 million, better than the consensus of $893.3 million. 

Copart (CPRT) closed up more than +3% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $40. 

Victoria’s Secret & Co (VSXY) closed down more than -13% after reporting Q2 net sales of $1.61 billion, below the consensus of $1.62 billion.

Campbell’s Company (CPB) closed down more than -7% after reporting Q4 net sales of $2.14 billion, weaker than the consensus of $2.15 billion.

Tyson Foods (TSN) closed down more than -7% after cutting its full-year sales forecast to +1.5% to +2.0% from a previous forecast of +2.5% to +3.5%

Broadcom (AVGO) closed down more than -3% after forecasting Q4 revenue of $34.80 billion, below the consensus of $35.05 billion. 

Earnings Reports (9/4/2026)

BRT Apartments Corp (BRT) and Pro-Dex Inc (PDEX).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.