Wall Street rallies as Fed's Waller eases rate hike fears

NEW YORK — Wall Street advanced on Thursday as investors curbed their rate hike bets after U.S. Federal Reserve Governor Christopher Waller said he would support holding the Fed funds target rate steady if data shows inflationary pressures are easing.

All three major U.S. stock indexes were sharply higher, with the Nasdaq enjoying a boost from the "magnificent seven" group of AI-related megacap stocks. All three indexes were on track for weekly gains.

Fed Governor Christopher Waller told Reuters he would be inclined to let key interest rates stand should upcoming data confirm that price pressures are easing, but added he would support a rate hike if inflation fails to cool down.

Following Waller's remarks, financial markets moderated expectations for rate hikes at the Fed's September meeting, lowering the likelihood to 50.4 percent from 63.2 percent on Wednesday, according to CME's FedWatch tool.

The benchmark U.S. Treasury yield pulled back for the second straight session after touching its highest level since November 2023. Rate-hike expectations had spiked in recent sessions, as long-dated bond yields surged to the highest levels in years on a global bond selloff driven by fears of inflation, ballooning debt and geopolitical uncertainty.

"Commentary from Fed Governor Waller (is) providing a broad lift for markets writ large," said Bill Northey, senior investment director at U.S. Bank Wealth Management, Billings, Montana.

"Underneath the broad market indices, we're seeing continued influence by those late reporters from the second quarter earnings reporting season," Northey added. "And that's driving some differentiation between spaces like semiconductors, where we had a high-profile report yesterday afternoon, and also within the software space, where we've seen some differential results, meeting or exceeding somewhat lower bar standards."

Thursday's economic reports were generally upbeat, with low jobless claims and an acceleration of the service sector. On the other hand, the data showed services input prices hit their highest level since October 2022, and the international trade gap widened by 24.4 percent.

On Friday, the Labor Department is due to release its August employment report, which is expected to show the U.S. economy added 56,000 jobs last month, holding the unemployment rate steady at 4.1 percent.

The Dow Jones Industrial Average rose 645.71 points, or 1.22 percent, to 53,707.66, the S&P 500 gained 88.54 points, or 1.15 percent, to 7,755.14 and the Nasdaq Composite gained 410.31 points, or 1.57 percent, to 26,628.14.

Of the 11 major sectors in the S&P 500, consumer discretionary was up the most, while materials and energy stocks showed modest percentage losses.

Nvidia said it would buy developer platform Hugging Face for $12.9 billion in a challenge to OpenAI and Anthropic. Its shares rose 2.6 percent.

But chipmaker Broadcom dropped 3.7 percent following its weaker-than-expected fourth-quarter revenue forecast, a reminder that companies at the center of the AI buildout have a high bar to clear.

Snowflake soared 20.2 percent after forecasting strong annual revenue, boosting sentiment across the software sector. ServiceNow rose 6.4 percent, while Salesforce and Adobe gained 3.4 percent and 2.3 percent, respectively.

The S&P Software & Services index gained 3.6 percent.

Crypto-linked stocks rose after bitcoin rebounded following two straight sessions of losses, with Strategy surging 15.0 percent, Coinbase Global climbing 10.3 percent and retail trading platform Robinhood Markets jumping 16.1 percent.

Advancing issues outnumbered decliners by a 2.25-to-1 ratio on the NYSE. There were 219 new highs and 114 new lows on the NYSE.

On the Nasdaq, 3,010 stocks rose and 1,658 fell as advancing issues outnumbered decliners by a 1.82-to-1 ratio.

The S&P 500 posted 14 new 52-week highs and 8 new lows while the Nasdaq Composite recorded 59 new highs and 97 new lows.