U.S. Markets — Wall Street Surges as Rate-Hike Fears Ease

Stocks staged their strongest rally of the week Thursday as investors pulled back from expectations that the Federal Reserve will raise interest rates at its September meeting.

The Dow Jones Industrial Average jumped 645.71 points, or 1.22%, to close at 53,707.66.

The S&P 500 gained 88.54 points, or 1.15%, to 7,755.14, while the Nasdaq Composite surged 410.31 points, or 1.57%, to 26,628.14. 

The immediate catalyst was Federal Reserve Governor Christopher Waller signaling that he could support leaving rates unchanged if upcoming inflation readings show price pressures easing. Markets cut the probability of a September rate increase to roughly 50% from 63% a day earlier. That development was already part of JBizNews coverage Thursday, but its impact dominated the closing numbers. 

Bond yields retreated with the 10-year Treasury around 4.75%, providing some relief to rate-sensitive stocks. Oil remained expensive, however: Brent crude settled at $95.52 a barrel, while U.S. crude finished at $91.30. 

For businesses, Thursday’s rally should not be confused with a sudden disappearance of inflation risk. Financing costs eased slightly, but energy remains expensive and new economic data showed businesses paying some of the fastest-rising service-sector input costs in years.

Economy & Main Street — Services Boom While Businesses Face a New Cost Squeeze

America’s enormous services economy accelerated unexpectedly in August.

The Institute for Supply Management’s services index climbed to 55.4 from 54.1 in July, comfortably above the 50 level separating expansion from contraction.

More importantly, new orders surged to 60.9, their highest level since February 2023.

That is a significant sign that consumer spending and business demand remain stronger than many feared.

But there was a problem buried inside the numbers.

The index measuring what services companies are paying for supplies and other inputs jumped to 72.6, its highest level since August 2022. 

That combination — strong demand and rising costs — is precisely what makes the Federal Reserve’s next decision difficult.

Businesses are still receiving orders, but inflationary pressures are not disappearing.

For restaurant owners, contractors, professional-service companies, transportation operators and countless other Main Street businesses, this can mean another period in which expenses increase faster than customers are willing to accept price increases.

Jobs — Employers Still Aren’t Firing, but They Aren’t Hiring Much Either

Only 206,000 Americans filed new unemployment claims last week, an increase of just 2,000 and still near the low end of this year’s range.

Continuing unemployment claims rose to 1.779 million.

The numbers reinforce what economists increasingly describe as a slow-hire, slow-fire labor market.

Companies are reluctant to conduct large layoffs, but they are also becoming much more cautious about adding workers.

Planned job cuts announced by U.S. companies increased 58% in August to 52,881, although that was still the lowest August total since 2022. 

There was one encouraging development for employers.

Revised government figures showed nonfarm worker productivity rose at a 1.4% annualized rate during the second quarter, while unit labor costs increased only 1.2%.

Manufacturing productivity rose an even stronger 2.4%, while manufacturing unit labor costs actually declined 0.3%. 

That matters because greater productivity allows companies to produce more without increasing labor expenses at the same rate.

If artificial intelligence and automation eventually deliver the productivity improvements businesses are investing billions of dollars to achieve, that could become one of the most important forces helping control inflation over the next several years.

Trade — U.S. Deficit Jumps 24% as Companies Import Record Capital Equipment

The U.S. trade deficit widened 24.4% in July to $88.6 billion.

Imports climbed to $399.3 billion, including a record $140.3 billion of capital-goods imports as companies brought in computers, semiconductor equipment and other machinery tied partly to the enormous AI infrastructure buildout.

Exports, meanwhile, declined to $310.7 billion. 

This is an important economic story because the investment boom is clearly real — American businesses are buying enormous amounts of equipment.

But much of that equipment is still coming from overseas.

Despite aggressive tariffs designed to reduce America’s dependence on imports, the United States recorded record goods deficits with several major trading partners during July.

The widening deficit could also subtract substantially from third-quarter economic growth after trade already reduced second-quarter GDP growth by more than a percentage point.

For businesses, the message is mixed: capital spending remains strong, particularly around AI, but the reshoring of the supply chain remains far from complete.

Technology & Cloud — Microsoft Finally Reveals How Big Azure Really Is

For years Microsoft told investors how quickly Azure was growing without revealing precisely how much revenue the cloud business produced.

That has now changed.

Microsoft disclosed that Azure generated $29.4 billion in its latest quarter and $101.9 billion during its fiscal year ended June 30.

That puts Azure behind Amazon Web Services, which recently generated $42.2 billion in quarterly cloud revenue, but ahead of Google Cloud’s $24.8 billion. 

Microsoft is also reorganizing how it reports its entire business.

Instead of three traditional operating divisions, it will increasingly divide the company between “Agents and Infra” — encompassing cloud computing, AI and business software — and “Devices and Consumer,” which includes Windows, Xbox and advertising.

That accounting change says something important about where Microsoft believes its future lies.

The company no longer wants investors thinking primarily about Windows, Office and Xbox as separate franchises. It increasingly wants Wall Street measuring Microsoft as an AI and cloud infrastructure company.

Why it mattered today: Investors finally have a direct dollar figure against which they can judge whether Microsoft’s enormous spending on data centers, chips and AI infrastructure is translating into actual Azure revenue.

And at more than $100 billion annually, Azure is already one of the largest standalone technology businesses in the world.

Banking & Fintech — Revolut Moves Closer to Becoming a Full U.S. Bank

British financial-technology giant Revolut received conditional approval for a U.S. national bank charter, moving it much closer to competing directly with traditional American banks.

Revolut has approximately 80 million customers worldwide and plans to establish its U.S. bank in Stamford, Connecticut.

The company expects to inject about $95 million in capital and aims to launch the bank during the first half of 2027, pending additional approvals from the FDIC and Federal Reserve.

Its planned products include checking accounts, installment loans, credit cards, foreign exchange services and eventually a stablecoin. 

This is bigger than another banking license.

Fintech companies spent years building apps that sat on top of the traditional banking system. Revolut is now moving directly into the banking business itself.

That means traditional banks — particularly institutions competing for younger customers, international businesses and digital-first consumers — could face another enormous competitor.

It also brings stablecoins one step closer to mainstream financial services.

Trade & Equipment — New Drone Tariffs Take Effect Today

A major new U.S. tariff regime on imported commercial drones took effect Thursday.

Beginning at 12:01 a.m. September 3, the United States imposed a 100% tariff on certain larger drones, drones equipped with thermal-imaging technology, docking stations and designated critical components.

Certain smaller imported drones are subject to a 25% tariff.

Products meeting specific origin requirements from the European Union, Japan, South Korea, Taiwan, Switzerland and Liechtenstein can face rates no higher than 15%, while qualifying British products can receive a 10% rate. 

The administration argues that America has become dangerously dependent on foreign drone manufacturers and components and wants the tariffs to accelerate domestic production.

But the business impact goes far beyond defense contractors.

Drones are now routinely used by construction companies, roofers, utilities, agriculture businesses, telecommunications companies, surveyors, real-estate operators, infrastructure companies and emergency services.

For companies buying specialized imported equipment, particularly larger or thermal-imaging drones, acquisition costs could change dramatically beginning today.

Domestic drone manufacturers stand to benefit from protection against foreign competitors, but even American manufacturers rely heavily on imported motors, batteries, electronic controls and other components.

So the transition may create higher costs before a larger domestic supply chain develops.

Main Street Retail — Convenience Stores Warn New SNAP Rule Could Force Thousands Out

A federal food-assistance rule scheduled to take effect November 4 is creating a significant issue for convenience-store operators.

Nearly 250 stores and several major trade associations are asking the Agriculture Department to delay enforcement, warning that thousands of stores could otherwise stop accepting SNAP food benefits.

Under the new requirements, participating retailers must carry at least seven varieties in each of four staple categories: dairy, fruits or vegetables, grains and protein.

Stores that fail to comply can lose their authorization to accept SNAP. 

More than 117,000 U.S. convenience stores currently participate in SNAP, representing nearly half of all SNAP-authorized retailers.

Operators say they need additional time to locate products, negotiate with distributors, adjust shelf space and determine how to handle fresh foods that can spoil much faster than traditional convenience-store inventory.

Major chains including outlets of 7-Eleven, Wawa, Sheetz and RaceTrac joined smaller operators in seeking a six-month delay after the government issues additional guidance. 

Why it mattered today: This is a textbook example of a regulation that can sound relatively simple in Washington but become expensive at store level.

For small operators, carrying more perishable inventory means refrigeration, shelf space, additional deliveries and spoilage.

For consumers, particularly people working overnight shifts or living in communities without nearby supermarkets, losing SNAP access at convenience stores could substantially reduce where they can buy food.

Transportation — Autonomous Trucking Heads Back to Wall Street

Autonomous-trucking software developer PlusAI agreed to go public through a SPAC transaction valuing the company at approximately $800 million before new investment.

The transaction could provide PlusAI with about $300 million in additional capital.

Its SuperDrive system is designed to operate commercial trucks at Level 4 autonomy, meaning vehicles can drive without human intervention under defined operating conditions.

The company is targeting commercial deployment beginning in 2027 and is already operating autonomous freight routes in Texas with transportation partners. 

PlusAI says its development platform has generated $25 million in revenue and it is targeting between $40 million and $50 million of contracted revenue during 2026.

Why it mattered today: Autonomous trucking is moving from years of demonstrations toward an actual commercial-business model.

Trucking is one of the largest expenses in the American supply chain. If autonomous trucks can operate longer hours while reducing labor requirements, the technology could eventually lower freight costs for retailers, manufacturers and distributors.

But investors are again being asked to put substantial valuations on companies whose commercial autonomous operations remain very small.

That makes PlusAI another test of whether public markets are ready to finance the next stage of autonomous transportation.

Global Autos — Volkswagen Says Up to 50,000 Jobs Could Go

Volkswagen’s supervisory board approved a sweeping restructuring plan Thursday that could ultimately eliminate around 50,000 jobs across the company, including management positions.

The automaker said existing cost-cutting programs are no longer enough and that a broader adjustment to its global workforce is necessary.

It did not specify exactly where or when all the cuts would occur. 

Volkswagen pointed to changing demand, technological disruption and growing global competition.

The significance extends beyond one automaker.

Traditional manufacturers are being forced to finance electric vehicles, battery platforms and increasingly expensive vehicle software while simultaneously defending market share against Chinese manufacturers and newer competitors.

A restructuring involving roughly 50,000 positions at one of the largest automakers in the world shows just how disruptive that transition has become.

Suppliers, factories and entire manufacturing regions that depend on Volkswagen could ultimately feel the effects.

After the Bell — Lululemon Cuts Its Outlook Again

Lululemon delivered another warning about the premium consumer immediately after Thursday’s closing bell.

The athletic-apparel company now expects full-year revenue to fall between 5% and 7%, substantially worse than its previous forecast for sales ranging from flat to down 1%.

It also reduced its expected earnings to $9.48 to $9.73 per share, down from its previous range of $10.95 to $11.15. 

Incoming CEO Heidi O’Neill is inheriting a company facing both softer consumer demand and increasingly aggressive competition from younger athletic and lifestyle brands.

Why it mattered today: Lululemon built one of retail’s strongest premium brands by convincing consumers to pay substantially more for apparel.

If even those customers are becoming more selective, it is another indication that discretionary spending is becoming harder to capture.

It also shows that the consumer slowdown is not limited to lower-income households or discount retail.

Key Market Movers

Company

Thursday Move

What Happened

Snowflake

+20.2%

Strong revenue outlook reignited enthusiasm for enterprise AI and cloud software

Robinhood

+16.1%

Crypto-related stocks rallied alongside bitcoin

Strategy

+15.0%

Bitcoin rebound lifted crypto-linked shares

Coinbase

+10.3%

Cryptocurrency markets rebounded

Nvidia

+2.6%

Investors reacted to its Hugging Face acquisition

Broadcom

-3.7%

Revenue guidance failed to meet extremely high AI expectations

The contrast between Snowflake and Broadcom was important.

Investors remain willing to reward companies benefiting from AI spending very aggressively — but expectations have become so high that even strong growth can produce a selloff when forecasts fall slightly short. 

What to Watch Friday, September 4

The most important economic report of the week arrives Friday at 8:30 a.m. ET, when the Labor Department releases the official August employment report. The Bureau of Labor Statistics confirms the September 4 release time. 

Economists surveyed by Reuters expect the economy to have added approximately 56,000 jobs in August, following a 23,000 decline in July, with unemployment remaining around 4.1%. 

That report could reverse Thursday’s entire interest-rate move.

A substantially stronger jobs number would give the Fed more room to concentrate on inflation and could quickly revive expectations for a September rate increase.

A weak report — particularly another negative payroll number — would raise a very different concern: that the labor market is deteriorating faster than investors realized.

Friday is also the final U.S. trading session before the Labor Day weekend, with U.S. equity markets closed Monday, September 7.

That makes Friday afternoon positioning especially important.

Investors will be heading into a three-day weekend with Brent crude still above $95 and the Middle East conflict capable of producing a major oil-price move while U.S. markets are closed.

Bottom Line

Thursday produced exactly the kind of contradiction businesses and investors are confronting heading into the fall.

Wall Street rallied because investors became less afraid of another immediate rate increase. But the economic data simultaneously showed strong service-sector demand, the highest service input-cost pressures in years and continued expensive energy.

At the corporate level, money is still pouring into cloud computing, AI infrastructure and autonomous transportation, while consumer businesses and global manufacturers are being forced to restructure, cut forecasts and rethink costs.

For business owners, the economy is not signaling recession.

It is signaling something potentially more complicated: demand remains alive, but labor, energy, financing, regulation and imported equipment remain expensive.

Friday’s jobs report will tell investors whether Thursday’s relief rally has a foundation — or whether another major repricing of interest rates begins before the long weekend.

JBizNews Desk | Wall Street

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