Stocks Rally to Fresh Record Highs on Rising Rate Cut Expectations

The stock market delivered a broad-based advance on Thursday, shrugging off hotter-than-expected inflation data as a sharp increase in jobless claims fueled expectations for multiple rate cuts before the end of the year. The S&P 500 (+0.9%), Nasdaq Composite (+0.7%), and DJIA (+1.4%) all set fresh record intraday and closing highs, with buyers firmly in control throughout the session.

The August PPI rose 0.4% (Briefing.com consensus: 0.3%) while Core PPI matched expectations at 0.3%, but it was the spike in initial jobless claims that grabbed the market’s attention. Claims climbed 27,000 to 263,000 (consensus: 240,000), their highest level since October 2021, reinforcing the narrative of a cooling labor market and heightening the odds of a more accommodative Fed.

According to the CME FedWatch tool, traders now assign a 92.4% probability of a 25-basis-point cut at the October FOMC meeting (up from 80.9% yesterday) and an 86.2% probability of another 25-point cut in December (up from 74.5% yesterday). A September cut was already fully priced in heading into today’s session.

Nearly all corners of the market participated in the rally, with ten of the eleven S&P 500 sectors closing higher. Materials (+2.1%), health care (+1.7%), consumer discretionary (+1.7%), financials (+1.7%), and real estate (+1.6%) led the way. Energy finished flat as crude oil settled $1.31 lower (-2.1%) at $62.36 per barrel.

Individual movers added color to the session’s strength. Centene (CNC) surged 9% after reaffirming its FY25 guidance, while Micron (MU) jumped 7.6% following a price target hike at Citigroup. Media stocks were in focus after The Wall Street Journal reported that Paramount Skydance (PSKY) is preparing a majority-cash bid for Warner Bros. Discovery (WBD), sending both names sharply higher.

Tesla (TSLA) was the standout among mega-caps, climbing 6.0% and helping the Vanguard Mega Cap Growth ETF (+0.5%) notch a solid gain despite a mostly muted session for its other components. Homebuilders also outperformed as investors embraced the prospect of a lower-rate environment, with the iShares U.S. Home Construction ETF advancing 2.8%.

Small-cap and mid-cap stocks joined the rally as well, with the Russell 2000 up 1.8% and the S&P MidCap 400 rising 1.6%, underscoring the breadth of participation.

On the policy front, CNBC reported that the Senate will vote Monday on Stephen Miran’s Fed Governor nomination, potentially seating him in time for next week’s FOMC meeting. Treasury Secretary Scott Bessent also hinted that the administration may expand its list of candidates for the next Fed Chair nomination, signaling that personnel decisions remain a market-moving subplot heading into the fall.

Our FTinvest 11 model portfolio index showed early weakness this morning, spending much of the first half of the session hovering below its flatline as investors weighed lingering market volatility. However, steady buying interest emerged in the afternoon, helping the index mount an impressive recovery and finish the day firmly in positive territory.

By the close, FTinvest 11 was up 0.54%, setting a fresh record high at 859.87. The late-session strength underscored continued resilience in the portfolio despite broader market uncertainty and positioned it to build on its upward momentum heading into the end of the week.

Breadth within the portfolio was generally supportive, with several of the key holdings leading the advance. The strong close suggests that buyers remain willing to step in on dips, a sign that sentiment for the portfolio remains constructive at these elevated levels.