Wall Street indexes close more than 1% higher as Treasury yields slide

Wall Street ended solidly higher on Thursday, as investors jumped back into stocks after a few turbulent sessions. Sentiment was supported by a slide in U.S. Treasury yields amid positive comments from a Federal Reserve policymaker, along with a gain in software stocks. 

The technology sector also saw a notable development in Nvidia confirming that it had agreed to buy open source artificial intelligence platform Hugging Face for nearly $13 billion. Meanwhile, oil prices remained elevated after more military aggression from Iran towards U.S. bases in Kuwait.

The blue-chip Dow Jones Industrial Average rose 1.2% to close at 53,685.52 points, the benchmark S&P 500 advanced 1.1% to settle at 7,747.71 points, and the tech-heavy NASDAQ Composite surged 1.4% to finish at 26,584.06 points.

Yields continue retreat from multi-year highs, Waller provides some relief

The big story for the last few weeks has been an extended rout in bond markets in the U.S. and across the world, boosting yields to multi-year highs and lifting borrowing costs. The drivers of the sell-off include jitters about inflation amid elevated oil prices, fears about unsustainable debt issuance by companies to fund their AI infrastructure buildouts, and ballooning fiscal debt.

On Tuesday, the benchmark U.S. 10-year yield hit its highest level since November 2023, while the 2-year yield hit its highest since July 2024. They eased up on Wednesday, and the decline picked up on Thursday, with the 10-year last down 2.2 basis points to 4.772%, and the 2-year down 4.6 basis points to 4.340%.

Some positive commentary from Fed Governor Christopher Waller helped the mood.

"While inflation remains meaningfully above the Federal Open Market Committee’s (FOMC) 2 percent goal, recent data suggest we are finally seeing some signs of disinflation. If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting," Waller said in prepared remarks at a Reuters NEXT interview in Washington, D.C.

The voting member of the FOMC added that he believed underlying inflation was doing much better than core figures suggested. The remarks marked a less hawkish tone than Fed Chair Kevin Warsh’s speech at the annual Jackson Hole conference last week.

"After a strong earnings season, macro factors are back in the driver’s seat, with interest rates front and center. Today’s rally was aided by Fed Governor Christopher Waller’s comments supporting a hold in the federal funds rate," Keith Lerner, chief investment officer and chief market strategist at Truist, told Investing.com. 

"Slightly lower rates are providing relief for markets, with the 10-year Treasury yield remaining below the closely watched 4.8% level. A weaker dollar is also supporting gold and small caps, both of which tend to benefit when rates ease. Looking ahead, tomorrow’s jobs report and upcoming inflation data will be key. While we expect some near-term choppiness, our work continues to suggest this bull market deserves the benefit of the doubt," he added.

Market participants will indeed receive the August nonfarm payrolls report on Friday. While recent labor market indicators have been soft, the overall jobs picture remains resilient, giving the FOMC the space to focus on inflation. However, any softness in the labor situation would put the central bank in a dual mandate dilemma.

Software catches a bid, Broadcom guidance disappoints

Away from interest rates, software stocks rose on Thursday, with the iShares Expanded Tech-Software Sector ETF concluding 3.4% higher. The rise came on the back of a more than 16% jump in Snowflake, after the cloud-based data platform lifted its annual product revenue guidance.

Snowflake top boss Sridhar Ramaswamy highlighted that AI was "creating a flywheel effect" across the company’s business.

Elsewhere, Broadcom lost 2.7% and ended among the top percentage losers on the Nasdaq after the firm issued current quarter revenue guidance that missed consensus estimates. Broadcom is a major player in the semiconductor and infrastructure software solutions industries, designing AI chips and making semiconductor products spanning several other markets.

Broadcom’s rivals include other chipmakers and designers such as Nvidia, Marvell, Qualcomm, and AMD. Broadcom has gained significance as a viable alternative to Nvidia for hyperscalers such as Alphabet and Meta to make microchips known as application-specific integrated circuits (ASICs).

Speaking of Nvidia, the world’s largest company on Thursday confirmed media reports that it had agreed to buy Hugging Face, an open source AI platform that hosts a massive, interconnected ecosystem serving over 18 million developers, researchers, and creators.

Nvidia said it would shell out $12.93 billion for the acquisition, while CEO Jensen Huang said Hugging Face would remain an open platform for the entire AI ecosystem. 

Oil prices little changed, sitting on big weekly gains

Turning to the Middle East, the situation remained on edge amid the biggest spike in tensions between the U.S. and Iran since July.

Washington and Tehran had been locked in an impasse over control of the Strait of Hormuz coming into last weekend, and President Donald Trump had appeared to shift his strategy from military strikes to economic warfare. However, kinetic action resumed on Sunday for the first time in weeks and has escalated over the last few days, with both sides exchanging strikes.

Iran’s state media reported drone and missile strikes against U.S. bases in Kuwait, while Kuwait’s foreign ministry separately said Iran had carried out aggressive actions at dawn on Thursday.

Trump on Wednesday told reporters that he didn’t think the new military exchanges with Iran would last "too long" and again touted control of the Strait of Hormuz. On Thursday morning, the U.S. president posted a graphic to his Truth Social service which said current oil volumes flowing through the vital waterway stood at 18 million barrels a day, compared to 20 million barrels before the conflict.

Against this backdrop, oil prices made small moves on Thursday, with Brent crude futures, the global benchmark, last up 0.2% to $95.81 a barrel, and U.S. West Texas Intermediate crude futures up 0.7% to $91.68 a barrel. Both contracts were sitting on hefty weekly gains, however, with Brent having risen 8.4% and WTI 10%.    

Vahid Karaahmetovic, Ambar Warrick, and Pranav Kashyap contributed to this article