U.S. stocks advanced in late trading on Tuesday, with the Dow Jones Industrial Average climbing approximately 400 points. The rally was led by AMD and software stocks as investor concerns about artificial intelligence disrupting certain industries eased. Meanwhile, a Federal Reserve official called for a pause on interest rate cuts.
The Dow increased by 386.72 points, or 0.79%, closing at 49,190.78. The Nasdaq Composite rose by 226.35 points, or 1.00%, to 22,853.62, while the S&P 500 gained 49.73 points, or 0.73%, ending at 6,887.48.
Home Depot contributed to the Dow's rise, with its shares climbing 2% after the company reported earnings that exceeded expectations for the first time in a year. IBM, which had declined in the previous session due to AI-related concerns, also supported the index's upward movement.
AMD's stock surged 9% following Meta's announcement of a multi-year agreement with the semiconductor firm. The new collaboration involves deploying up to 6 gigawatts of AMD graphics processing units for AI data centers. Meta will also invest in AMD through performance-based stock warrants, granting it the right to purchase up to 160 million shares of the chipmaker.
This development comes just a week after Meta indicated it was utilizing millions of Nvidia chips in the construction of its data centers.
DocuSign also emerged as a winner, with its stock rising 3% after Anthropic revealed that its Claude Cowork can now integrate with DocuSign and other existing enterprise tools such as Google Drive and Gmail. This move fostered investor optimism that AI may complement rather than replace software companies.
The positive sentiment extended to other segments within the software sector. Salesforce, which has also been collaborating with Anthropic, and ServiceNow saw their shares increase by 4% and 2%, respectively. The iShares Expanded Tech-Software Sector ETF advanced 2%, although it remains more than 30% below its 52-week high.
Anshul Sharma, Chief Investment Officer at Savvy Wealth, commented, "It seems to me that the market itself is in a 'sell first, ask questions later' mindset. That mentality has persisted for some time, which is why even some enterprise software stocks have taken a significant hit." He added that the day's movement represented a "typical relief rally following that round of selling."
Sharma also expressed skepticism regarding recent Wall Street narratives suggesting that AI is on the verge of rapidly displacing a large portion of enterprise software. He stated, "From a liability perspective, it is incredibly risky for very large companies to say, 'Okay, we're going to abandon proven, tested enterprise software that fits our risk parameters and build everything in-house, all within the next few months or quarters.' The decline in software stocks was a very direct reaction."
Major indices had declined on Monday as concerns about AI disruption resurfaced. Traders remained cautious due to former President Trump's threat to raise global tariffs to 15% and ongoing tensions between the U.S. and Iran. A 10% global U.S. tariff took effect on Tuesday.
Chicago Fed President Austan Goolsbee advocated for a pause on rate cuts, emphasizing that more evidence of declining inflation is needed before any reductions. Noting that recent indicators show inflation, while well below peak levels, remains above the Fed's 2% target, Goolsbee warned against repeating past mistakes by assuming inflation is transitory.
He stated, "I think it would be unwise in this situation to move aggressively and cut rates prematurely. People indicate that prices are one of their most pressing concerns. Let's stay focused on that. Before we cut rates further to stimulate the economy, let's make sure inflation is returning to the 2% level."
The latest December inflation data showed the core Personal Consumption Expenditures price index, the Fed's preferred gauge, at 3%, up 0.2 percentage points from November. This increase was partly attributed to tariffs viewed as temporary, but also reflected underlying pressures in services and sectors not directly affected by tariffs.
Goolsbee specifically highlighted persistently high housing inflation, which is not driven by tariffs, and stressed the need for the Fed to remain "vigilant." He noted that a 3% inflation rate is "not good enough—and not where the Fed committed to a 2% target. For reasons we are all too familiar with, stalling at 3% is not a safe place." He had previously suggested that the Fed could implement rate cuts later this year.
Goolsbee's remarks come as markets expect the Federal Open Market Committee, of which he is a voting member this year, to maintain current interest rates at least until June, and possibly July. According to the CME Group's FedWatch tool, traders see about a 50% probability of a rate cut in June and a 71% chance in July. The Fed implemented three 25-basis-point rate cuts in the second half of 2025.
Fed Governor Christopher Waller, who has previously advocated for rate cuts, also spoke at the National Association for Business Economics conference, adopting a more cautious tone. While Waller suggested that policymakers should "look through" the effects of tariffs, he pointed to recent data indicating that labor market conditions may be stronger than previously shown, reducing the urgency for further rate cuts. Continued improvement in employment would further weaken the case for easing, though he acknowledged that he did not view January's nonfarm payroll data as merely "noise."
Waller also mentioned that the Fed is advancing the deployment of AI across regional banks and its headquarters to leverage the groundbreaking technology. He remarked, "In my lifetime, I haven't seen a technological revolution like this," emphasizing that the Fed's system prioritizes shared standards and infrastructure while maintaining decentralization in monetary policy and economic research.
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