US stocks recovered from early losses to close higher on Thursday, with the S&P 500 bouncing from a two-week low as a global bond selloff reversed course after sending US Treasury yields to multi-decade highs.
Stocks were under pressure in early trading as economic data kept pointing to a solid economy with persistent price pressures that stoked fears that inflation could ultimately force the Federal Reserveto become more aggressive with rate hikes.
The Labor Department said weekly initial jobless claims dipped to 197,000, below the 200,000 forecast of economists polled by Reuters. It was the latest in a string of reports this week that indicated the labor market was on solid footing, ahead of the government payrolls report on Friday.
Treasury yields extended gains, and the benchmark 10-year Treasury note hit a 24-year high, after closing out September with its biggest quarterly gain since 1994, and pushed equities lower after the Institute for Supply Management said its manufacturing PMI dipped to 54.5 last month from 54.6 in August and showed a jump in input prices, raising inflation worries.
TREASURY YIELDS REVERSE COURSE
But yields turned lower as buyers stepped in, and further declined after Fed Vice Chair Philip Jefferson suggested the central bank may be patient before hiking rates again, following a 25 basis point hike in September.
The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, dropped nearly 10 basis points and was poised for its biggest daily drop since August 2025.
"Even though valuations have come down, the market's still not cheap, so I'm not bearish on the equity market. We can chug along, but I expect higher volatility in both equities and bonds," said Scott Welch, chief investment officer at Certuity in Potomac, Maryland.
"Everybody's adjusting to a new normal. There's nothing particularly scary about what's happening in the markets right now; it's just a little bit different than what people have been used to operating in over the past few years, and it's going to take some adjustment."
According to preliminary data, the S&P 500 gained 17.28 points, or 0.23%, to end at 7,668.82 points, while the Nasdaq Composite gained 17.73 points, or 0.07%, to 26,871.60. The Dow Jones Industrial Average rose 29.84 points, or 0.06%, to 50,935.89.
ENERGY SECTOR LEADS GAINS
Oil prices also kept stoking inflation worries. Brent crude settled up more than $4 a barrel after China suspended fuel exports, threatening to further tighten markets. The jump in crude prices helped boost the S&P 500 energy index almost 2% as the best performing of the 11 major S&P sectors.
Technology also showed some strength, up nearly 1% as software shares rallied on results from Accenture . The IT consulting firm's shares surged to hit their highest intraday level since mid-February after it forecast full-year revenue growth above estimates.
Micron Technology closed higher as a better-than-expected revenue forecast and $32 billion in customer commitments under its supply agreements reinforced faith in the AI trade.
Softer-than-expected inflation data on Wednesday further dampened expectations that the Fed would increase rates at its October meeting. Markets are now pricing in only a 28.2% chance for a hike of at least 25 basis points, down from the 68.6% a week earlier, according to CME Fedwatch.
Following Jefferson's comments, Minneapolis Federal Reserve President Neel Kashkari said he expects additional rate increases will be needed to restrain the economy going into 2027, though he is unsure about whether the next move should happen this month.
