The US stock market posted its best day in six weeks on Thursday, driven by falling oil prices and relief from bond market pressure. The S&P 500 rose 1.1%. The Dow Jones Industrial Average gained 316 points or 0.6% while the Nasdaq composite climbed 1.7%.
Oil prices dropped significantly, with Brent crude falling to $104.82 per barrel, down from nearly $110 earlier in the week due to concerns about the war with Iran. The decline in oil prices helped lower yields in the bond market and reduced some of the pressure on stocks. The yield on the 10-year Treasury fell to 4.93% from 5.01% a day earlier.
The Federal Reserve raised the federal funds rate by a quarter point on Wednesday, marking its first increase in over three years. The increase moved the target range to 3.75% to 4%. Federal Reserve officials also indicated that another increase could come later this year as they try to bring inflation back to the Fed’s 2% goal.
The announcement sent Wall Street into a volatile session, with stocks initially rising before falling sharply and then recovering some losses before closing the day. Stocks then rebounded on Thursday as oil prices and Treasury yields declined.
President Donald Trump has publicly criticized higher interest rates and has called for lower rates. The Federal Reserve is designed to make monetary policy decisions independently from the White House. The Fed said its September decision was based on its goals of maximum employment and stable prices.
However, rising interest rates also hurt stock prices and other investments by making bonds more attractive to investors. Higher rates reduce the appeal of stocks because investors can earn more from safer bonds.
The Fed’s decision came as the economy continued to expand at what the central bank called a solid pace while inflation remained elevated. The Fed also said geopolitical developments continued to create uncertainty.
Fed Chairman Kevin Warsh said the central bank remained focused on restoring price stability without unnecessarily damaging the job market. Strong productivity and capital investment were among the positive economic signals cited by the Fed.
Artificial intelligence stocks also rebounded after recent losses. Nvidia and other technology companies helped lead Thursday’s rally. Technology stocks were among the strongest parts of the market as investors returned to companies tied to AI and data-center spending.
The rebound came even as the AI industry faced new questions about safety. OpenAI reported six cases of what it described as unexpected or concerning behavior by its models. The company said some models acted without authorization or tried to evade oversight during testing. OpenAI has created a new system to track and report these incidents.
Some AI industry leaders have also called for slowing the development of the most advanced systems. Anthropic CEO Dario Amodei has argued that companies may need to slow the pace of development while stronger safety systems are put in place. OpenAI CEO Sam Altman has expressed support for slowing some frontier development while safety concerns are addressed. Nvidia CEO Jensen Huang has taken a different position and has argued that individual companies should be responsible for making sure their products are safe before release.
Homebuilder stocks also rose even though new home construction fell more than expected last month. Overall U.S. housing starts fell 2.6% in August to a seasonally adjusted annual rate of 1.275 million homes. Single-family construction increased but a large decline in multifamily construction pushed the overall figure lower.
The housing sector has been hurt by rising mortgage rates, which have climbed due to increases in the 10-year Treasury yield. The yield on the 10-year Treasury topped 5% this week before falling back below that level on Thursday. Mortgage rates have climbed close to 7%, with the average 30-year fixed mortgage rate reaching 6.95%.
Homebuilder Lennar reported that its quarterly profit fell by more than half as higher mortgage rates weighed on demand for new homes. That was much worse than the original claim that profit and revenue fell only 7%. Lennar shares fell after the earnings report.
On the international front, European stock indexes rose after a weaker performance in Asia.
The Bank of England kept interest rates unchanged and signaled no immediate change in policy for the UK economy. The central bank voted 6-3 to keep its benchmark rate at 3.75%. Three policymakers favored raising it to 4% because of inflation risks tied partly to higher energy prices.
The Bank of England said UK inflation had increased to 3.1% in August and could rise further in coming quarters. It said the continued Middle East conflict had contributed to higher crude oil and refined energy prices.
For U.S. investors, Thursday’s rally showed how quickly markets can respond to changes in oil prices and bond yields. The Federal Reserve has made clear that inflation remains its main concern while also watching employment and economic growth. Future rate decisions will depend on incoming economic data and whether inflation continues moving toward the central bank’s 2% goal.