Major U.S. stock indexes, including the S&P 500, Dow Jones Industrials, and Nasdaq 100, closed at new record highs on Thursday. The rally was driven by investor expectations for further interest rate cuts by the Federal Reserve and a significant surge in semiconductor stocks.
The market's upward momentum followed the Federal Reserve's recent decision to lower interest rates by 25 basis points. The central bank also indicated the possibility of an additional 50 basis points in cuts before the end of the year, fueling a risk-on sentiment across financial markets.
Key Takeaways
- The S&P 500, Dow Jones, and Nasdaq 100 all set new record closing highs on Thursday, September 19.
- The rally was primarily fueled by expectations of additional Federal Reserve interest rate cuts.
- A major catalyst was Nvidia's $5 billion investment in Intel, causing Intel's stock to surge over 22% and lifting the entire semiconductor sector.
- Economic data presented a mixed picture, with a stronger labor market report but weaker leading indicators.
- Despite the stock rally, bond yields rose, with the 10-year Treasury note yield reaching a two-week high.
Market Performance and Fed Outlook
On Thursday, the S&P 500 Index ($SPX) increased by 0.48%, the Dow Jones Industrials Index ($DOWI) rose by 0.27%, and the Nasdaq 100 Index ($IUXX) gained 0.95%. These gains established new all-time highs for all three major benchmarks, reflecting strong investor confidence.
The primary driver for this optimism is the Federal Reserve's monetary policy stance. After implementing a 25 basis point rate cut on Wednesday, the Fed's projections signaled that more easing could be on the way. According to market data, traders are now pricing in a 94% probability of another 25 basis point rate cut at the next Federal Open Market Committee (FOMC) meeting scheduled for October 28-29.
However, comments from Fed Chair Jerome Powell introduced a note of caution. He highlighted persistent inflation risks, suggesting that the path to deeper rate cuts may not be straightforward. This created some tension in the markets, as investors weigh the prospect of easing against the reality of inflation.
Balancing Growth and Inflation
The Federal Reserve is currently navigating a delicate balance. On one hand, it aims to support the labor market and economic growth through lower interest rates. On the other, it must remain vigilant against inflation becoming entrenched. This dual mandate often leads to mixed signals that can cause short-term market volatility.
Semiconductor Sector Leads the Charge
A significant portion of Thursday's market gains was concentrated in the technology sector, specifically among semiconductor companies. The surge was ignited by a landmark announcement involving two industry giants.
Intel and Nvidia Partnership
Intel (INTC) stock skyrocketed by more than 22% after Nvidia announced it would invest $5 billion in the company. The two firms also revealed plans to co-develop chips for personal computers and data centers. This strategic partnership was viewed by investors as a major positive for Intel and the broader chip industry.
The news had a ripple effect across the sector:
- KLA Corp (KLAC), ASML Holding NV (ASML), and Applied Materials (AMAT) all closed up by more than 6%.
- Micron Technology (MU) and Marvell Technology (MRVL) saw gains of over 5%.
- Nvidia (NVDA) itself closed more than 3% higher.
Conversely, ARM Holdings (ARM) stock declined by over 4%, as the new Intel-Nvidia collaboration is seen as a formidable competitor in the PC and data center chip markets.
Economic Data and Bond Market Reaction
Thursday's economic reports presented a mixed but generally positive view of the U.S. economy, which in turn influenced the bond market. The 10-year Treasury note yield rose by 1.4 basis points to 4.101%, reaching a two-week high of 4.14% during the session.
Key Economic Indicators
- Weekly Jobless Claims: Fell by 33,000 to 231,000, indicating a stronger labor market than the 240,000 expected.
- Philadelphia Fed Business Outlook: Surged to 23.2, an eight-month high and significantly stronger than the forecast of 1.7.
- Leading Indicators: Declined by 0.5% in August, a larger drop than the anticipated -0.2%.
The stronger-than-expected labor and manufacturing data are typically seen as hawkish factors for Fed policy, meaning they could reduce the urgency for rate cuts. This contributed to the sell-off in Treasury notes and the corresponding rise in yields.
Rising inflation expectations also weighed on bonds. The 10-year breakeven inflation rate, a market-based measure of future inflation, climbed to a two-week high of 2.408%.
Global Market Overview
Overseas markets showed mixed results on Thursday. In Europe, the Euro Stoxx 50 climbed 1.62% to a 3.5-week high. The Bank of England (BOE) held its key interest rate at 4.00%, with Governor Andrew Bailey emphasizing that any future cuts would need to be made "gradually and carefully."
In Asia, Japan’s Nikkei Stock 225 rallied 1.15% to a new record high. However, China’s Shanghai Composite Index fell 1.15%, pulling back from a 10-year peak.
"Rate cuts need to be made gradually and carefully." - Andrew Bailey, Governor of the Bank of England
Notable Stock Movements
Beyond the semiconductor industry, several other companies made significant moves on Thursday.
Major Gainers
- 89bio (ETNB): Soared over 85% after Roche announced its intention to acquire the company for $3.5 billion, or $14.50 per share.
- CrowdStrike (CRWD): Closed up more than 12% following a positive investor briefing on its AI strategy and a strong preliminary outlook for fiscal 2027.
- Allstate (ALL): Gained more than 4% after reporting that its catastrophe losses for August decreased by 8.7% month-over-month to $168 million.
Major Losers
- FactSet Research Systems (FDS): Plunged more than 10% after its quarterly earnings and full-year forecast fell short of analyst expectations.
- Darden Restaurants (DRI): Dropped over 7% after providing a 2026 earnings forecast with a midpoint below the market consensus.
- Nucor (NUE): Fell more than 5% after issuing a third-quarter earnings forecast that was significantly below Wall Street estimates.
