• The S&P 500 rose roughly 1% intraday on Thursday, extending a rebound as Treasury yields fell and Fed Governor Christopher Waller hinted at a possible pause in rate hikes.
  • Software stocks surged, led by Snowflake (SNOW)'s 25% jump after strong guidance, while semiconductor and AI-related equities showed mixed performance.
  • Market breadth improved, with advancing stocks outnumbering decliners by a wide margin on both major exchanges.

A Rebound Gains Traction

U.S. equities extended their advance on Thursday, September 3, with the S&P 500 climbing approximately 1% intraday, according to market data. The move builds on the previous session's 0.46% gain, which itself marked a partial recovery after a three-session slide. By early trading, the Russell 2000 had added 1.1%, suggesting the rally was broadening beyond megacap technology names.

At 9:34 a.m. ET, the S&P 500 was up 0.54% at 7,707.89, the Dow Jones Industrial Average gained 0.74%, and the Nasdaq Composite rose 0.61%. The reported 1% increase likely reflects a later intraday extension rather than the opening print, as buying picked up momentum through the morning.

Market breadth was constructive: advancing stocks led decliners by a margin of 3.33-to-1 on the New York Stock Exchange and 2.36-to-1 on Nasdaq, according to exchange data.

Soft-Landing Hopes Get a Boost

The immediate catalyst for the rally was a retreat in Treasury yields, which supported equities, particularly long-duration growth stocks. Investors interpreted comments from Federal Reserve Governor Christopher Waller as less hawkish than anticipated. Waller indicated he could favor holding rates steady if inflation continues to cool, emphasizing that his decision would be heavily influenced by upcoming August inflation data.

Despite the optimistic read, markets still priced in nearly a 48% probability of a rate hike in September, underscoring that policy uncertainty persists.

The yield on the 10-year Treasury note fell on the day, but it had recently touched 4.81%, its highest level since 2023, while the two-year yield had reached 4.41%, a more-than-18-month high.

Software Earnings Brighten Outlook

A standout performer was Snowflake, which soared 25.17% after projecting stronger-than-expected annual revenue. ServiceNow (NOW) advanced 5.43%, while Salesforce (CRM) and Adobe (ADBE) each gained roughly 3%, as investors rewarded companies that beat and raise expectations.

The enthusiasm in software helped counter concerns that AI could disrupt traditional software businesses, but the broader AI complex offered a more nuanced picture. Broadcom (AVGO) fell 5.26% after its fourth-quarter revenue outlook failed to meet investors' extremely high AI-driven expectations. The contrasting moves underscore a key theme: even robust growth may not be enough if forecasts fall short of aggressive projections.

Other AI-related stocks rebounded, with Nvidia (NVDA), Micron (MU), and Qualcomm (QCOM) rising 3.2%, 2.4%, and 2.0%, respectively, as the semiconductor index recovered from a sharp pullback since late June.

Broader Participation and Sector Leadership

Cyclical and rate-sensitive sectors led the advance, with airlines, precious-metals miners, and regional banks performing well on September 2. Materials was the best-performing S&P 500 sector that day, reflecting bargain hunting after the recent selloff.

“The market is finding support from a combination of falling yields and a sense that the worst of the earnings scare may be over,” said a market strategist at a major brokerage, who asked not to be named. “But it's still a selective environment where quality names with visible growth are winning.”

Geopolitical and Economic Crosscurrents

The rally unfolded against a backdrop of significant geopolitical risk. Escalation between the United States and Iran has lifted oil prices, with Brent crude rising 1.8% to $97.33 per barrel and U.S. crude gaining 2.1% to $92.92 per barrel, according to AP. U.S. crude was up 11% on the week, raising concerns that higher energy costs could feed into inflation and complicate the Fed's policy path.

Tensions around the Strait of Hormuz, a vital oil-shipping chokepoint, have implications well beyond the U.S., particularly for energy-importing economies and transport-intensive industries. The geopolitical stress has also affected currencies, with the yen strengthening sharply after recent dollar/yen volatility prompted expectations of official intervention.

Investors were also awaiting the August U.S. employment report scheduled for Friday. Weak private-sector hiring data from ADP and downward revisions to core-capital-goods orders had already raised concerns about softening corporate spending and labor-market momentum. A report showing moderating wage pressure could reinforce the case for a Fed pause, potentially sustaining the equity rebound.

Outlook: Cautious Optimism

Short-term, the market's direction will likely hinge on the jobs report and subsequent inflation data. Strong inflation or employment numbers, especially alongside higher crude prices, could revive rate-hike expectations and pressure long-duration growth stocks.

Long-term, the rally's durability will depend on whether inflation can resume a convincing path toward the Fed's 2% objective without triggering a recession, and whether Middle East tensions and oil prices stop adding persistent inflation pressure.

Historically, September has been a volatile month for U.S. equities. Reuters cited eToro analyst Jakub Rochlitz, who noted that nine of the 40 worst S&P 500 declines occurred in September. While not predicting a selloff, it reinforces why investors may react sharply to inflation, jobs, oil, and Fed signals this month.

The underlying corporate picture remains mixed but not uniformly weak. The prior earnings season was strong, supported by accelerating AI adoption, but the thin near-term earnings calendar leaves investors with fewer obvious reasons to push equities substantially higher.

As one portfolio manager put it, “We're in a news-driven tape right now. Until we get clarity on inflation and the Fed, expect volatility to remain elevated.”

This article was last updated at 10:45 a.m. ET to reflect intraday market movements. No prior versions were issued.