The S&P 500 Index ($SPX) (SPY) on Thursday rose +0.84%, the Dow Jones Industrials Index ($DOWI) (DIA) rose +0.77%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +0.93%.  September E-mini S&P futures (ESU25) rose +0.84%, and September E-mini Nasdaq futures (NQU25) rose +0.92%. 

Stock indexes moved higher on Thursday as bond yields fell on expectations that the Fed will start cutting interest rates as soon as this month.  Thursday’s weak US labor market reports knocked bond yields lower and reinforced speculation that the Fed will cut rates as soon as the September 16-17 FOMC meeting. The 10-year T-note yield fell by -5 bp and posted a 4-month low.  The futures market shows the chances of a Fed rate cut this month rising to 97% from 95% on Wednesday and 88% last Friday. 

Stocks maintained their gains on signs of strength in the service sector after the Aug ISM services index expanded at the strongest rate in six months.

Meanwhile, chip stocks were undercut by a -4% fall in Texas Instruments after CFO Lizardi cautioned that the recovery in chip demand is not quite snapping back as some have hoped. 

Stocks were also undercut by concern about the Fed’s independence after Stephen Miran, during his Senate confirmation hearing on Thursday for his appointment as a Fed governor, stated that he would not relinquish his position as chair of the White House Council of Economic Advisors, opting instead for an unpaid leave of absence.

The Aug ADP employment change rose +54,000, weaker than expectations of +68,000.

US weekly initial unemployment claims rose by +8,000 to a 10-week high of 237,000, showing a weaker labor market than expectations of 230,000.

US Q2 nonfarm productivity was revised upward to +3.3% from the previously reported +2.4%, better than expectations of +2.7%.  Q2 unit labor costs were revised downward to +1.0% from the previously reported +1.6%, weaker than expectations of +1.2%.

The US Aug ISM services index rose +1.9 to a 6-month high of 52.0, stronger than expectations of 51.1.

Looking ahead to Friday’s US economic reports, Aug nonfarm payrolls are expected to rise by +75,000, and the Aug unemployment rate is expected to rise by 0.1 to 4.3%.  Aug average hourly earnings are expected to increase +0.3% m/m and +3.7% y/y.

Regarding tariffs, a federal appeals court ruled late last Friday that President Trump exceeded his authority by imposing global tariffs without Congressional approval, but the court let the tariffs remain in place while appeals continue.  The US Court of Appeals for the Federal Circuit Court said, “The statute bestows significant authority on the President to undertake a number of actions in response to a declared national emergency, but none of these actions explicitly include the power to impose tariffs, duties, or the like, or the power to tax.” The case now appears to be headed to the Supreme Court for a final decision.  According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced.

Federal funds futures prices are discounting the chances of a -25 bp rate cut at 97% at the next FOMC meeting on September 16-17.  The markets are discounting the chances at 54% for a second -25 bp rate cut at the following meeting on October 28-29.

Overseas stock markets on Thursday closed mixed.  The Euro Stoxx 50 closed up +0.41%.  China’s Shanghai Composite fell to a 2-week low and closed down -1.25%.  Japan’s Nikkei Stock 225 closed up +1.53%.

Interest Rates

December 10-year T-notes (ZNZ5) on Thursday rose +9 ticks, and the 10-year T-note yield fell -5.6 bp to 4.161%.  Dec T-notes climbed to a 4.75-month high, and the 10-year T-note yield fell to a 4-week low of 4.168%. 

T-note prices saw support from the weak US labor market reports, which boosted the chances of a Fed rate cut at its Sep 16-17 meeting to 97%. T-note prices also saw support from the upward revision to Q2 productivity and the downward revision to Q2 unit labor costs.  In addition, T-notes garnered support from Thursday’s 1% fall in WTI crude prices to a 2-week low, which helped cause the 10-year breakeven inflation expectations rate to fall by -1.5 bp to 2.390%.

T-notes were undercut by the rise in the Aug ISM services index to a 6-month high, a hawkish factor for Fed policy.

European government bond yields on Thursday moved lower.  The 10-year German bund yield fell -2.1 bp to 2.719%. 10-year UK gilt yield fell -2.7 bp to 4.720%.

Eurozone July retail sales fell -0.5% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 13 months.

Swaps are discounting the chances at 1% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

US stocks on Thursday saw support as all of the Magnificent Seven stocks closed higher, led by a sharp +4.3% gain in Amazon (AMZN), driven by a Business Insider report that Amazon is testing a new AI-powered workspace software called Quick Suite.  Meanwhile, Meta (META) and Tesla (TSLA) both showed gains of more than +1%.

Homebuilders climbed after the 10-year T-note yield fell to a 4-month low, a bullish factor for housing demand.  PulteGroup (PHM) and Toll Brothers (TOL) rose more than +3%.  Lennar (LEN) and DR Horton (DHI) rose more than +2%. 

Hewlett Packard Enterprise (HPE) rose +1.5% after reporting Q3 net revenue of $9.14 billion, stronger than the consensus of $8.65 billion.

T. Rowe Price Group (TROW) rose more than +5% after Goldman Sachs said it will invest as much as $1 billion in the company and team up with the asset manager to sell private-market products to retail investors.

American Eagle Outfitters (AEO) rose +38% after reporting Q2 net revenue of $1.28 billion, better than the consensus of $1.23 billion. 

Ciena (CIEN) rose +23% after reporting Q3 adjusted EPS of 67 cents, stronger than the consensus of 53 cents. 

Credo Technology Group (CRDO) rose +7.4% after reporting Q1 adjusted EPS of 52 cents, well above the consensus of 35 cents.

Genuine Parts (GPC) rose +3.7% after appointing two new directors to its board in cooperation with Elliott Investment Management.

Salesforce (CRM) fell nearly -5% to lead losers in the Dow Jones Industrials after forecasting Q3 revenue of $10.24 billion to $10.29 billion, with the midpoint below the consensus of $10.29 billion.   

Texas Instruments (TXN) fell -4.5% to lead losers in the Nasdaq 100 and weigh on chip makers after CFO Lizardi cautioned that the recovery in chip demand is not quite snapping back as some have hoped.  Other weak chip stocks included a -1.3% decline in NXP Semiconductors NV (NXPI).  However, most other chip stocks closed higher, led by gains of more than +1% in Qualcomm (QCOM), Applied Materials (AMAT), and Broadcom (AVGO).

Health insurance stocks fell after executives from Elevance Health said at the Wells Fargo Health Care Conference that it no longer expects Medicaid margins to improve in the second half of the year.  As a result, Elevance Health (ELV) and Centene (CNC) fell by more than -4%, and Molina Healthcare (MOH) fell by more than -3%.

Caleres (CAL) fell -4.8% after reporting Q2 gross margin of 43.4%, below the consensus of 44.6%.   

Gitlab Inc (GTLB) fell -7.4% after forecasting 2026 revenue of $936 million to $942 million, the midpoint below the consensus of $940 million. 

Science Applications International (SAIC) fell -6.9% after reporting Q2 revenue of $1.77 billion, weaker than the consensus of $1.86 billion, and cutting its 2026 revenue forecast to $7.25 billion-$7.33 billion from a previous forecast of $7.60 billion-$7.75 billion, well below the consensus of $7.63 billion.   

Old Dominion Freight Line (ODFL) overcame early weakness and closed higher by +0.5% despite reporting that Aug less-than-truckload (LTL) shipments fell -9.2% y/y. 

Earnings Reports(9/5/2025)

ABM Industries Inc (ABM), C&F Financial Corp (CFFI), Ermenegildo Zegna NV (ZGN), KalVista Pharmaceuticals Inc (KALV), Louisiana-Pacific Corp (LPX), National Beverage Corp (FIZZ), Pathward Financial Inc (CASH), Pro-Dex Inc (PDEX).