Stocks surged, reversing a week of losses and sending the Dow Jones Industrial Average to a record, while bond yields fell as surprisingly dovish comments by Jerome Powell convinced investors that rate cuts are all but guaranteed.

By shifting focus toward risks in the jobs market, the Federal Reserve chief signaled it may not wait for perfect inflation before slashing rates.

That was enough to trigger a broad rally that drove the S&P 500 up 1.5% - the most since May - as investors piled into shares that tend to do well amid lower borrowing costs. All tech megacaps gained, a measure of small firms jumped 4% and banks hit all-time highs. The crypto world roared.

As traders boosted wagers on a September Fed move, Treasuries climbed across the curve, with two-year yields sinking 10 basis points. A dollar gauge slid about 1%.

“The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,” Powell said Friday. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”

To Krishna Guha at Evercore, his speech was much more dovish than the market feared.

“Powell has thrown the door wide open to a September cut with his Jackson Hole speech that sends a clear, strong signal the Fed is on track to reduce rates by 25 basis points at that meeting,” he said.

“Powell did something that no one thought he would – he went ahead and signaled that the Fed is ready to cut interest rates at their next meeting,” said Chris Zaccarelli at Northlight Asset Management. “The bar is extremely high now for the Fed to leave rates unchanged in less than a month.”

To David Laut at Abound Financial, while there is still one more employment report before the September meeting, it’s clear the Fed has enough data under its belt to justify a September cut.

“The stock market tends to favor lower interest rates and since Powell hinted at the likely prospect of a September cut, we expect the market’s bullish trend to continue over the short-term,” Laut said.

The Fed finds itself in a challenging situation, with inflation picking up and the labor market beginning to deteriorate, according to Bret Kenwell at eToro.

“Cut rates too much or too early and they risk adding fuel to the inflation fire,” Kenwell said. “Cut too late or too little and they risk a larger breakdown in the labor market — and thus, the economy. This delicate balance is exactly why the Fed finds itself in a difficult position.”

To Seema Shah at Principal Asset Management, while the speech clearly leaned dovish, Powell’s remarks signal that a 25 basis point cut is valid, but a 50 basis point cut is not.

“Certainly, while the case for easing has strengthened, there is little economic justification for an emergency-sized 50 basis-point cut,” Shah said. “Should the Fed opt for such a move, markets may interpret it as a sign of political influence rather than data-driven decision-making.”

This could push inflation expectations and term premia higher, driving long-end yields up and undermining the very conditions that have supported risk assets, she said.

Labor-market weakness appears to have outweighed inflation risk for the Fed, and the markets’ initial response speaks for itself, according to Ellen Zentner at Morgan Stanley Wealth Management.

“Longer term, the debate about how far and fast the Fed will cut rates is just beginning. Chairman Powell reaffirmed the 2% inflation target, and with tariffs still working their way through the economy, the Fed avoided declaring victory on that portion of its mandate.”

“Powell just flipped the mandate,” said David Russell at TradeStation. “His talk of labor market slack and slowing GDP growth moves the needle from price stability to full employment. Job growth is weak and continuing claims are on the rise. Better safe than sorry.”

Russell notes, though, there’s a lot of data between now and the September meeting. “so there’s no reason to upset the apple cart right now.”

“If the next jobs or CPI reports surprise to the upside, Powell can get more hawkish without hurting his credibility,” he said. “But defying the market now would create major risk if the August data comes in light.”

Corporate highlights

—President Donald Trump met with Intel Corp. Chief Executive Officer Lip-Bu Tan at the White House to finalize a deal giving the U.S. government a nearly 10% equity stake in the beleaguered chipmaker.

—Apple Inc. is in early discussions about using Google Gemini to power a revamped version of the Siri voice assistant, marking a key potential step toward outsourcing more of its artificial intelligence technology.

—Nvidia Corp. has instructed component suppliers including Samsung Electronics Co. and Amkor Technology Inc. to stop production related to the H20 AI chip, the Information reported, citing unidentified sources.

—Meta Platforms Inc. has agreed to a deal worth at least $10 billion with Alphabet Inc.’s Google for cloud computing services, according to people familiar with the matter, part of the social media giant’s spending spree on artificial intelligence.Meta is hiring another key Apple AI executive, even as the social networking company prepares to slow its recruitment, according to people familiar with the matter.

—Boeing Co. and union leaders representing striking workers at its St. Louis-area defense factories will hold their first formal talks next week as they aim to end a three-week long impasse.

—Visa Inc. shut its open-banking business in the U.S. amid regulatory uncertainty about consumer-data rights and the prospect of higher fees for customer information, according to people familiar with the matter.

—Discount-retailer Ross Stores Inc. projected inflation will push more consumers to seek its off-price wares and deliver sales growth above expectations.

—Cenovus Energy Inc. agreed to buy MEG Energy Corp. for C$6.93 billion ($5 billion), topping a rival offer from Strathcona Resources Ltd. in a bid to boost its position among Canada’s largest oil producers.

Some of the main moves in markets:

Stocks

—The S&P 500 rose 1.5% as of 4 p.m. New York time

—The Nasdaq 100 rose 1.5%

—The Dow Jones Industrial Average rose 1.9%

—The MSCI World Index rose 1.5%

—Bloomberg Magnificent 7 Total Return Index rose 2.5%

—The Russell 2000 Index rose 3.9%

—KBW Bank Index rose 3.2%

Currencies

—The Bloomberg Dollar Spot Index fell 0.8%

—The euro rose 1% to $1.1720

—The British pound rose 0.8% to $1.3518

—The Japanese yen rose 1% to 146.96 per dollar

Cryptocurrencies

—Bitcoin rose 3.8% to $116,657.37

—Ether rose 14% to $4,835.1

Bonds

—The yield on 10-year Treasuries declined seven basis points to 4.26%

—Germany’s 10-year yield declined three basis points to 2.72%

—Britain’s 10-year yield declined four basis points to 4.69%

—The yield on 2-year Treasuries declined 10 basis points to 3.69%

—The yield on 30-year Treasuries declined four basis points to 4.88%

Commodities

—West Texas Intermediate crude rose 0.5% to $63.82 a barrel

—Spot gold rose 1% to $3,372.48 an ounce

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