The bond market blinked. The 10-year yield fell 5 basis points to 4.75% — its first meaningful retreat since the global sell-off began Monday. The S&P surged 1.06%. The Dow climbed 624 points. The Nasdaq rose 1.4%. All eleven sectors closed green — the first truly broad rally since August's record high. Yesterday two stocks carried the index while nine sectors fell. Today the entire market participated. The catalyst was the same one that powered yesterday's bounce — dovish Fed voices — but louder. Fed Governor Waller's remarks on Thursday joined Williams' "no clear signs" from Wednesday, and the market now has two of the most influential FOMC voters pushing back on the hike narrative in consecutive sessions. Jobless claims edged higher. The trade deficit surged 24.4% to $88.6 billion — driven by $6.9 billion in computer imports as the AI buildout shows up in the national accounts. ISM services beat at 55.4. Snowflake exploded more than 20% on a blowout quarter. Broadcom fell about 2% despite record revenue after guiding Q4 below expectations. And Friday's jobs report is now the only data point between the market and the September FOMC meeting.
Broad rally, yield-driven. The S&P surged 1.06% to about 7,748 — its best day since mid-August and the second straight gain. The Dow climbed 624 points, or 1.2%, to about 53,686 — also its best session since August. The Nasdaq rose 1.4% to roughly 26,585. All eleven sectors closed green. Consumer discretionary and industrials led at about 1.7% each. Financials gained 1.5%. Communication services rose 1.4%. Tech added 0.9%. Even the laggards — health care and energy — finished positive. The breadth was the story: yesterday nine of eleven sectors closed red. Today: zero.
| The Numbers I Circled | At the close, September 3 · Day change |
|
| S&P 500 | 7,748 | +1.06% |
| Dow | 53,686 | +1.2% |
| Nasdaq | 26,585 | +1.4% |
| S&P 500 Sectors | Day change |
|
| Consumer Disc. | | +1.7% |
| Industrials | | +1.7% |
| Financials | | +1.5% |
| Comm. Services | | +1.4% |
| Info. Technology | | +0.9% |
| Utilities | | +0.9% |
| Real Estate | | +0.8% |
| Consumer Staples | | +0.6% |
| Materials | | +0.6% |
| Health Care | | +0.1% |
| Energy | | +0.1% |
| | Notable Gainers | Day change |
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The yield reversal unlocked the rally. The 10-year Treasury yield fell 5 basis points to 4.75% after Fed Governor Waller's dovish remarks joined Wednesday's pushback from NY Fed President Williams. Waller's comments, combined with a sharp rise in the Japanese yen, supported the drop in yields more broadly. When the 10-year yield falls, the math changes for every stock in the market: the discount rate drops, present values rise, and growth stocks get cheaper. That's why yesterday's narrow two-stock rally became today's broad eleven-sector rally. The yield is the master variable.
Snowflake was the session's standout, surging more than 20% after reporting second-quarter revenue of $1.55 billion — up 35% year over year and above the $1.49 billion estimate. The company raised its full-year product revenue guidance to approximately $6.07 billion. Enterprise adoption of generative AI and data cloud services is accelerating. Broadcom told the opposite story: record third-quarter revenue of $29.6 billion, up 86% year over year, but a disappointing fourth-quarter revenue forecast. The stock fell about 2%. The contrast — Snowflake beating and soaring, Broadcom beating and falling — tells you the market rewards guidance, not history.
The economic data was mixed but net dovish. ISM services beat at 55.4 — up 1.3 points from July and above the 54.1 consensus. The services economy is still expanding. But the trade deficit surged 24.4% to $88.6 billion — the highest since March 2025 — driven by a $14.4 billion jump in capital goods imports, including $6.9 billion in computers and $6.6 billion in accessories. The AI buildout is now visible in the national trade data. Jobless claims edged higher, adding to Wednesday's weak ADP reading of 38,000. The labor market is softening.
What The Market Is Pricing In
When the 10-year yield reverses after a multi-day sell-off, the shift from "yields rising" to "yields falling" reprices every asset class simultaneously. Tech rallies because growth stocks are more valuable at lower discount rates. Financials rally because lower yields reduce recession risk. Industrials rally because cheaper borrowing supports capital spending. Even energy holds because a growing economy sustains oil demand. The yield reversal is the most powerful single-day catalyst in markets because it touches everything at once. One day of falling yields did what two days of individual stock rallies — Nvidia on Thursday, Dell on Wednesday — couldn't: it lifted the entire market.
Two dovish Fed voices in two days changed the September calculus. Williams said "no clear signs" of a hike. Waller followed with remarks the market read as sympathetic. ADP showed 38,000 jobs. Jobless claims edged up. The data supports the doves. September hike odds have likely fallen from 60% to below 50%. But the data also showed ISM services at 55.4 — the economy is still growing — and the trade deficit surging on AI imports — spending is accelerating. The economy isn't weak. The labor market is softening. Those are different things. Warsh's "discipline" framework was about inflation, not employment. If Friday's jobs report shows weak hiring but strong wages, the Fed still has a case to hike. Only weak hiring AND soft wages would kill it.
The 10-year yield fell 5 basis points and all eleven sectors closed green for the first time since August's record, and the market is telling you that the yield is the variable that controls everything else — because when the bond market shifted from pricing a hike to questioning it, the rally broadened from two stocks to the entire index in 24 hours, and Friday's jobs report is the single data point that determines whether the yield reversal was the start of a trend or a one-day pause before the bond sell-off resumes. The trade deficit data is the under-covered story: $6.9 billion in computer imports and $6.6 billion in accessories in a single month. The AI buildout isn't just showing up in Nvidia's earnings and Dell's guidance. It's showing up in the nation's trade balance. The U.S. is importing AI infrastructure at a pace that's widening the trade deficit to levels not seen since early 2025. That spending is both inflationary (it adds to demand) and deflationary (it increases productivity). Which effect dominates depends on the timeframe — and the Fed doesn't have time for the long run.
In March 2023, the banking crisis pushed the 10-year yield from 4% to 3.3% in two weeks. The yield reversal triggered a broad equity rally as the market repriced from "Fed hiking" to "Fed pausing." The S&P gained 8% in six weeks. Today's yield retreat is smaller — 5 basis points — but the mechanism is the same: when yields reverse, the entire market reprices. The question is whether Friday's jobs report sustains the reversal or kills it.
Three things I'm watching tomorrow:
01 — August nonfarm payrolls: Friday September 5
The single most important data point before the September 17 FOMC meeting. Consensus is around 150,000 jobs. If payrolls come in below 100,000 — matching ADP's weakness — and the unemployment rate ticks above 4.0%, the hike case collapses. Yields break lower. The S&P has a clear path back to 7,800. If payrolls surprise above 200,000 with wages above 4%, Warsh's "discipline" framework holds, yields reverse Thursday's decline, and the rally stalls. Everything — yields, stocks, the September decision — runs through Friday's number.
02 — Does the yield reversal extend or reverse?
The 10-year fell from 4.81% to 4.75% in one session. If it continues to 4.65-4.70% on weak payrolls, the bond market is telling you September is a hold and the equity rally broadens further. If it bounces back above 4.80% on strong payrolls, Monday's global bond sell-off was the trend and Thursday was the anomaly. The yield direction Friday afternoon is the market's real-time vote on the FOMC.
03 — Broadcom's after-hours reversal: does it hold?
Broadcom fell about 2% during Thursday's session on a disappointing Q4 forecast. But the stock may bounce Friday as the market digests the headline: revenue up 86% year over year and record quarterly results. If Broadcom recovers, the AI hardware trade stays intact despite the guidance miss. If it continues falling, the market is saying guidance matters more than history — the same lesson it taught Palo Alto and CrowdStrike on Wednesday.
Yields fell. Everything rallied. All eleven sectors closed green. Two Fed doves in two days pushed back on the hike. ADP and jobless claims say the labor market is cooling. ISM says the economy is still growing. And $6.9 billion in computer imports says the AI buildout is reshaping the trade balance. Tomorrow's jobs report writes the next chapter. If the labor market confirms what ADP suggested — that the economy is slowing enough to take a hike off the table — the S&P has its path back to the record. If it doesn't, the bond market resumes its sell-off and Thursday was the intermission.
That's it for today. See you tomorrow after the close.
— Tom Hartley
Today In Perspective · Published daily, Monday–Friday, after the close
This newsletter is for informational purposes only and does not constitute investment advice. The author is not a registered investment advisor. Past performance does not guarantee future results. Consult a qualified financial professional before making investment decisions.
