US stocks closed higher on Tuesday as investor concerns about artificial intelligence disrupting certain industries eased, with gains led by Advanced Micro Devices and software stocks. A Federal Reserve official called for a pause on interest rate cuts.
The Dow Jones Industrial Average rose 370.44 points, or 0.76%, to close at 49,174.50. The Nasdaq Composite climbed 236.41 points, or 1.04%, to 22,863.68. The S&P 500 gained 52.32 points, or 0.77%, finishing at 6,890.07. Home Depot's stock rose 2%, supporting the Dow, 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 contributed to the Dow's advance. Shares of Advanced Micro Devices surged 8.8% after Meta Platforms, Inc. announced a multi-year agreement with the semiconductor company. The new collaboration includes deploying up to 6 gigawatts of AMD graphics processing units for AI data centers. Meta will also invest in AMD through performance-based warrants, granting the right to purchase up to 160 million shares of the chipmaker. This development follows an announcement from Meta last week that it is using millions of Nvidia chips in its data center construction. DocuSign was another winner, with its stock rising 2.6% after Anthropic stated that its Claude Cowork can now integrate with DocuSign and other existing enterprise tools like Google Drive and Gmail. This move fostered investor optimism that AI may complement rather than replace software companies. This 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 4.1% and 1.7%, 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 the market itself is in a 'sell first, ask questions later' mindset. That mindset has been in place for a while, which is why you're seeing even some enterprise software stocks take a pretty significant hit." He added that Tuesday's market gains represented a "classic relief rally following yesterday's selloff." Sharma also expressed skepticism regarding recent claims on Wall Street that AI is poised to rapidly replace a significant amount of enterprise software. "From a liability perspective, for very large companies, to say 'Okay, we're going to abandon the tried, tested, and risk-parameter-met enterprise software now and just build it in-house, and all of that is going to happen in the coming months, coming quarters,' is incredibly risky," Sharma stated. "The selloff in software stocks is a very straightforward reaction." Major indices had declined on Monday as concerns about AI disruption resurfaced. Traders also remained cautious due to former President Trump's threat to raise global tariffs to 15% and ongoing tensions between the US and Iran. A 10% global US tariff took effect on Tuesday, with the White House pushing to increase it to 15%.
Fed's Goolsbee Calls for Pause on Rate Cuts Chicago Fed President Austan Goolsbee said on Tuesday that it would be premature to implement interest rate cuts before more evidence confirms that inflation is subsiding. Noting that recent indicators show inflation, while well below its peak, remains above the Fed's 2% target, Goolsbee pointed out that policymakers have been misled before by assuming inflation was transitory and should avoid repeating that mistake. "I think it would be unwise in this situation to ease policy aggressively and prematurely," he stated during a speech at the National Association for Business Economics annual conference in Washington, D.C. "People indicate that prices are one of their most pressing concerns. Let's keep our eye on that. Let's make sure inflation is heading back to 2% before we cut rates further to stimulate the economy." The latest December inflation data showed the core Personal Consumption Expenditures Price Index, the Fed's primary gauge which excludes volatile food and energy prices, at 3%. This figure was 0.2 percentage points higher than November's reading, partly due to tariffs considered temporary, but also due to underlying pressures in services and sectors not directly affected by tariffs. Specifically, Goolsbee noted that stubbornly high housing inflation is not driven by tariffs and emphasized the need for the Fed to remain "vigilant." A 3% inflation rate is "not good enough—and it's not what the Fed promised with its 2% target," Goolsbee said. "For reasons we know all too well, stopping at 3% is not a safe place." He has previously indicated he believes the Fed will be able to cut rates later this year. Goolsbee's comments came as markets expect the Federal Open Market Committee, on which Goolsbee holds a voting membership this year, to maintain current interest rates at least until June, and potentially until 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 generally advocated for rate cuts, also spoke at the NABE conference on Monday, striking a more cautious tone. While Waller suggested policymakers should "look through" the effects of tariffs, he noted that recent data indicates labor market conditions might be stronger than previously shown, reducing the necessity for further easing. Continued improvement in employment would further weaken the case for cuts, though he acknowledged he did not view January's nonfarm payrolls data as merely "noise over signal." Waller also mentioned that the Fed is advancing its systematic deployment of AI across regional banks and its headquarters to leverage the breakthrough technology. "In my lifetime, I haven't seen a technology revolution like this," Waller said in prepared remarks delivered at a conference organized by the Boston Fed on Tuesday. He stated the Fed's system prioritizes model sharing, standards, and infrastructure while maintaining decentralization in monetary policy and economic research.
Tuesday Economic Data According to payroll processor ADP, the US labor market showed signs of improvement in early February. Private sector employment increased by 12,750 positions in the week ending February 7th, marking the fourth consecutive week of improvement for this cyclical data. This was the strongest weekly gain since November 29, 2025. ADP noted that these figures are preliminary and subject to revision but appear to provide positive momentum for the February nonfarm payroll totals. The Bureau of Labor Statistics uses the week containing the 12th of the month for its payroll survey sample.
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