U.S. stocks finished sharply higher today, with the Dow up 1.18%, S&P 500 up 1.06%, Nasdaq up 1.40%, and Russell 2000 gaining 0.51%.
The rally was broad, with the strongest market breadth in roughly a month. All of the Magnificent Seven stocks finished higher, while software, banks, insurers, private equity, autos and apparel retailers also performed well.
Treasury yields edged lower after Fed Governor Christopher Waller suggested he could support holding rates steady in September if inflation continues to improve. Gold jumped 2.8%, silver gained 3.4%, and Bitcoin rose more than 5%. Oil was little changed.
Waller Gives Markets Some Rate Relief
The biggest catalyst was a shift in interest-rate expectations.
Waller said he would be inclined to hold rates steady at the September Fed meeting if the recent improvement in inflation continues. He left the door open to another hike if upcoming inflation data disappoint, but his comments were noticeably more balanced than some of the Fed’s recent messaging.
Markets responded quickly. The estimated probability of a September rate hike fell to roughly 50%, down from nearly 70% earlier this week. That helped stocks because investors have spent much of the past week worrying that higher oil prices and stubborn inflation could force the Fed to tighten even as parts of the economy begin slowing.
Today’s message did not remove that risk, but it reminded investors that another rate increase is far from predetermined.
AI Demand Remains Strong
The other major theme remained AI. Broadcom reported somewhat disappointing near-term revenue guidance, but the longer-term outlook was striking. The company expects AI chip revenue to reach roughly $230 billion in fiscal 2028, about double its expected fiscal 2027 level.
Broadcom highlighted commitments from six major cloud customers and said demand remains constrained by supply and deployment capacity rather than customer interest. Snowflake provided another encouraging signal, with growth accelerating and AI products beginning to make a larger contribution to results. The stock jumped nearly 17%. Nvidia also announced a $12.9 billion acquisition of Hugging Face, while Microsoft, Meta and other major technology companies continued unveiling new AI products and infrastructure investments.
The broader message remains consistent: despite persistent questions about the economics of AI spending, actual demand for infrastructure and AI-enabled products remains very strong.
The Economy Is Stronger, but Inflation Is Still Sticky
Economic data added another layer to the Fed debate. The August ISM services index rose to 55.4, signaling stronger-than-expected activity across the service economy. New orders improved sharply, while employment remained relatively soft but stabilized.
The less encouraging part was inflation. The survey’s prices-paid index climbed to its highest level in four years, reflecting continued pressure from fuel, tariffs and supply-chain disruptions. Initial jobless claims remained low at 206,000, suggesting layoffs are still limited. That combination, resilient growth, relatively stable employment and elevated prices, explains why the Fed remains cautious despite recent signs of disinflation.
Middle East Risks Ease Slightly
Geopolitical concerns also became somewhat less threatening today. Reports suggested the White House may try to limit further escalation with Iran in the near term, while oil flows through the Strait of Hormuz reached their highest level since the conflict began.
Oil prices consequently remained relatively stable despite the recent military escalation. The situation remains fluid, but improving shipping activity reduces the immediate risk of a major energy supply disruption, an important development given how much oil and diesel prices have contributed to recent inflation concerns.
Here’s Our Take
Today’s rally came from a combination the market badly needed: slightly lower rate expectations, improving market breadth and continued evidence of strong AI demand.
The most important shift was in the Fed narrative. Waller did not declare victory on inflation, but he pushed back against the idea that another rate hike is inevitable. That gave investors some relief after a week dominated by rising yields and concerns about further tightening. At the same time, corporate fundamentals, particularly around AI, remain strong. Broadcom’s long-term forecast and Snowflake’s acceleration reinforce the view that both infrastructure spending and AI monetization are still progressing.
The challenge is that inflation has not disappeared. Services prices remain elevated, oil is still high, and the economy continues to show enough resilience that the Fed cannot comfortably ignore those pressures. For now, the market appears to be returning to a more balanced view: the Fed may not need to tighten again if inflation continues improving, while corporate growth remains healthy enough to support stocks. Tomorrow’s employment report will provide the next test. A moderate jobs number could reinforce Thursday’s optimism; a surprisingly strong report could quickly bring rate-hike concerns back into focus.
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