The U.S. stock market recorded its best performance in six weeks on Thursday, reversing much of the prior day's losses as falling oil prices and lower bond yields provided immediate relief to investors. The S&P 500 jumped 1.1%, marking its second increase in the last nine days, while the Dow Jones Industrial Average added 316 points and the Nasdaq composite climbed 1.7%.
The rally followed a 1% slide in Brent crude oil, which settled at $104.82 per barrel. This marked a retreat from the nearly $110 level reached earlier in the week amid concerns that the war with Iran would keep oil supplies trapped in the Middle East. Although Brent remains significantly higher than the $72 per barrel price seen earlier this summer, the Thursday drop helped pull yields lower in the bond market. The yield on the 10-year Treasury fell to 4.93% from 5.01% late Wednesday, reducing the cost of borrowing for governments, homeowners, and businesses.
This movement came shortly after the Federal Reserve raised the federal funds rate by a quarter of a percentage point on Wednesday, its first hike in over three years. Fed Chairman Kevin Warsh stated that a strengthening economy was a key reason for the move, citing "geopolitics" and the risk that rising prices could push up inflation elsewhere, likely referring to the impact of the war with Iran on oil costs. Officials signaled they may raise rates again this year to control high inflation.
Market reactions to the Fed's decision were mixed. While higher rates generally undercut stock prices by making safer bond investments more attractive and slowing economic activity, some investors viewed the hike as a sign of confidence in the Fed's commitment to returning inflation to its 2% target. This perspective emerged as questions grew about potential pressure from President Donald Trump, who has called for lower interest rates.
Economic data released on Thursday suggested the U.S. economy may be resilient enough to withstand higher rates. Reports indicated that fewer U.S. workers applied for unemployment benefits last week, and manufacturing growth in the mid-Atlantic region exceeded economists' expectations.
In specific sectors, artificial intelligence stocks continued their rebound from a global slide on Monday. Nvidia climbed 2.5%, and Advanced Micro Devices rose 6.4%, despite OpenAI disclosing six additional reports of "unexpected or concerning" behavior in AI models. Industry leaders had called for a slowdown in development over the weekend to address safety issues.
Homebuilder stocks also advanced, benefiting from the lower bond yields even though new home starts last month missed economic forecasts. D.R. Horton rose 1.5% and PulteGroup added 1.1%. Lennar climbed 1.7%, erasing an early loss after reporting quarterly profit and revenue below analyst expectations. The housing sector has faced significant pressure as the 10-year Treasury yield topped 5% for the first time since 2023, driving mortgage rates higher.
By the close of trading, the S&P 500 stood at 7,637.76, up 85.95 points. The Dow Jones Industrial Average reached 51,778.04, gaining 316.14 points, and the Nasdaq composite hit 26,418.30, up 439.87 points.
Internationally, European indexes rose after a weaker finish in Asia. London's FTSE 100 climbed 1.2% following the Bank of England's decision to keep interest rates on hold.