U.S. equities opened August with a broad-based rally as investors shifted back into a risk-on posture, buoyed by falling Treasury yields, a sharp drop in oil prices, and renewed demand for large-cap technology shares.

The S&P 500 rose 1.50%, while the Nasdaq Composite gained 2.13%. European indices also closed solidly higher on the day, with the exception of the UK FTSE 100.

ISM Manufacturing Surges to Four-Year High

The Institute for Supply Management's Manufacturing PMI for July came in at 55.6, well above the 54.0 consensus estimate and up from 53.3 in June — the strongest reading in more than four years. Readings above 50 signal expansion in the sector, which had been a persistent soft spot in the U.S. economy amid higher interest rates. New Orders held firmly in expansion territory at 56.7. The Employment Index jumped to 52.8 from 49.7, marking a return to expansion for the first time in 33 months and the highest level since August 2022.

The Prices Paid index eased to 71.1 from 73.0 but remained elevated, indicating that inflation pressures within the manufacturing sector persist.

Separately, the S&P Global Manufacturing PMI final for July printed at 53.9, slightly above the 53.8 preliminary reading.

US Construction Spending for June, however, disappointed at -0.1% versus the 0.2% estimate.

The Atlanta Fed's GDPNow growth estimate — a real-time tracker that updates as economic data is released — was revised upward to 6.2% from a prior 5%, reflecting stronger-than-expected incoming figures.

Fed's Williams: Policy "Well Positioned"

New York Fed President John Williams reaffirmed the Federal Reserve's current policy stance, stating that the July decision left interest rates "well positioned" to bring inflation back to the Fed's 2% target. He underscored the Fed's full commitment to price stability and said it would act if inflation fails to move sustainably toward that goal.

Williams expressed confidence that inflation pressures should continue to ease gradually over time. He acknowledged uncertainty tied to the Middle East conflict but said he expects any inflationary impact to moderate.

Regarding market expectations, Williams noted that while the Fed monitors market pricing for the information it provides, policymakers are not obligated to validate or follow those expectations. His remarks offered no new policy signal, consistent with his typically centrist approach, leaving future decisions contingent on incoming data and geopolitical developments.

White House National Economic Council Director Kevin Hassett separately described US inflation numbers as "fantastic."

Technology Leads the Advance

Large-cap technology stocks once again powered the market higher as investors rotated back into AI-sector leaders:

• Meta: +6.02%
• Microsoft: +4.93%
• Alphabet: +4.88%
• Amazon: +4.58%
• Tesla: +3.49%
• Nvidia: +2.93%

Apple was the only Magnificent 7 laggard, declining 1.78% as investors continued to digest its prior-week earnings report and outlook.

Treasury Yields Fall Across the Curve

The bond market provided additional support for equities as Treasury yields declined:

• 2-year: -5.1 bps to 4.239%
• 5-year: -7.2 bps to 4.387%
• 10-year: -6.7 bps to 4.667%
• 30-year: -4.7 bps to 5.227%

The lower yields bolstered investor confidence to re-enter higher-growth sectors, particularly technology. The 30-year yield, despite the decline, remained above 5% — a level that has historically drawn attention from policymakers and investors as a benchmark for long-term borrowing costs.

Oil Plummets on Easing Supply-Disruption Fears

WTI crude oil tumbled 5.56% to $79.96 per barrel as concerns about an immediate disruption to Middle East oil supplies receded. The Strait of Hormuz, referenced in the geopolitical discussions, is one of the world's most critical oil transit chokepoints, passing roughly a fifth of global petroleum consumption. The sell-off helped temper inflation worries and reinforced the downward move in Treasury yields.

On the geopolitical front, President Trump stated that talks are ongoing and described the current moment as "the last chance." He also called Iran "unbelievably duplicitous." Reports indicated the US has made a concession to Iran regarding the Strait of Hormuz, though Iran reportedly will not open the route until the war is over. Iran refuted Trump's claims, and oil prices held lower despite the pushback.

Dollar Mostly Higher; Yen Outperforms

In foreign exchange markets, the US dollar finished mostly stronger against major peers:

• USD/AUD: +0.61%
• USD/NZD: +0.54%
• USD/GBP: +0.35%
• USD/CHF: +0.30%
• USD/EUR: +0.26%
• USD/CAD: +0.10%

The Japanese yen was the sole standout, with the dollar falling 0.28% against it, making the yen the strongest-performing major currency on the day.

Looking Ahead

Investors largely looked past lingering geopolitical uncertainty, focusing instead on better-than-expected manufacturing data, improving factory employment, easing yields, and lower oil prices. With the manufacturing sector posting its strongest hiring conditions in nearly three years and earnings season ongoing, market attention now turns to upcoming corporate results and Friday's US employment report for the next major macroeconomic catalyst.