Wall Street experienced a significant rally on Thursday, with all three major indices closing at record highs. The surge was bolstered by gains in materials and discretionary stocks, alongside encouraging inflation and labor market data that suggest the Federal Reserve may initiate multiple interest rate cuts in 2025, starting as early as next week.
The Dow Jones Industrial Average (DJI) rose by 1.4%, or 617.08 points, ending the day at 46,108.00. Of the 30 stocks in the index, 25 saw positive movement, while five declined. The Nasdaq Composite, known for its technology focus, added 157.02 points, or 0.7%, to close at 22,043.08. Similarly, the S&P 500 climbed 55.43 points, or 0.9%, concluding at 6,587.47. Notably, all 11 sectors of the S&P 500 recorded gains, with the Materials Select Sector SPDR (XLB), Consumer Discretionary Select Sector SPDR (XLY), and Health Care Select Sector SPDR (XLV) increasing by 2.1%, 2%, and 1.7%, respectively.
The CBOE Volatility Index (VIX), often referred to as the market’s fear gauge, decreased by 4.2% to stand at 14.17. On Thursday, trading volume amounted to 18.2 billion shares, exceeding the 20-session average of 16.1 billion shares.
Investors reacted positively to a blend of labor market and inflation data released that day, which bolstered the prevailing sentiment that the Federal Reserve is leaning toward cutting rates in the near future. Market sentiment has shifted to anticipate at least two 25-basis-point cuts in the latter half of 2025, despite ongoing inflation concerns. The latest consumer price index (CPI) data indicated a year-over-year inflation rate increase of about 2.9% in August, the highest since January. Core inflation, which excludes volatile food and energy prices, also remained elevated. In contrast, signs of a weaker labor market, evidenced by rising unemployment claims and cooling hiring, have intensified expectations for monetary easing.
Treasury yields fell in response to these developments as investors reacted to increased odds of one or more rate cuts being discussed in the upcoming Federal Reserve meeting. Sectors historically impacted by high borrowing costs, such as materials and discretionary consumer goods, saw heightened investor attention, further driving the market rally. Despite persistent inflation, the prevailing belief is that the Fed may prioritize labor market indicators over inflation concerns in its upcoming decisions.
Also benefiting from the market’s upward momentum, shares of Linde PLC and The Home Depot saw gains of 2.3% and 2.5%, respectively, both stocks currently holding a Zacks Rank #3 (Hold).
In labor market news, initial claims for unemployment benefits rose to 263,000 for the week ending September 6, increasing by 27,000 from the previous revised figure. This marks the highest level since late October 2021. Continuing claims for the previous week remained steady, recorded at 1,939,000, following a similar revision pattern.
Data from the U.S. Bureau of Labor Statistics indicated that the CPI for August rose by 0.4%, while the July figure was unrevised at a 0.2% increase. Core CPI also mirrored the previous month’s growth, rising by 0.3%.
As Wall Street adapts to these changing economic signals, the trajectory of the indices will largely depend on forthcoming data and the Federal Reserve’s communication regarding its monetary policy direction. For now, investor sentiment leans heavily towards anticipated rate cuts rather than further tightening.
