Key Points:
- The S&P 500 rose 0.64%, and the Dow Jones gained 0.66% after Israel announced direct negotiations with Lebanon.
- Software stocks took a major hit as Anthropic restricted its powerful new Claude Mythos AI to top tech companies.
- The February personal consumption expenditures index showed inflation running at 3.0% even before the recent oil price shock.
- Crude oil prices recovered slightly on Thursday, with Brent reaching $96.32 and WTI climbing to $97.89 a barrel.
US stock markets bounced back from early losses on Thursday. Investors cheered the news that Israel will start direct negotiations with Lebanon. This diplomatic move removed a major stumbling block in the fragile Middle East ceasefire. At the closing bell, the S&P 500 added 0.64% to reach 6,825.90 points. The Dow Jones Industrial Average gained 0.66% to finish at 48,227.32 points, while the NASDAQ Composite climbed 0.56% to 25,042.85 points.
Despite the overall market gains, software companies faced a brutal trading day. A major exchange-traded fund tracking the software sector dropped 4.7%. Market experts blamed the sudden slide on a massive disruption in the artificial intelligence industry. Anthropic recently developed a new tool called Claude Mythos, which excels at finding critical flaws in computer code. The tool is so powerful that Anthropic only allows major tech companies to use it right now. These tech giants need time to fix their own software vulnerabilities first.
Michael O’Rourke, chief market strategist at Jones Trading, noted that the return of the artificial-intelligence disruption trade had become the biggest financial story of the day. The exclusive release of Claude Mythos raises serious doubts about the quality and survival of older legacy software. Companies like Palantir Technologies felt the pain immediately, shedding 8.5% of their stock value after famous short sellers highlighted these new competitive threats.
In the Middle East, diplomatic efforts finally showed real progress. Israeli Prime Minister Benjamin Netanyahu instructed his government to open direct negotiations with Lebanon. He wants to focus the upcoming talks on disarming Hezbollah forces and establishing peaceful relations. This decision helped ease regional tensions after Iran accused Israel of violating the current ceasefire agreement through its continued military strikes in Lebanese territory.
The diplomatic breakthrough helped calm volatile energy markets. Brent crude futures rose 1.7% to $96.32 a barrel, while West Texas Intermediate crude increased 3.7% to $97.89 a barrel. These modest gains followed a massive price crash on Wednesday. President Donald Trump added some uncertainty to the mix when he stated that United States military forces will stay near Iran until leaders reach a real agreement. He also repeated his demands for Tehran to stop its nuclear activities and fully reopen the Strait of Hormuz.
While global politics dominated the headlines, Wall Street also digested a heavy batch of economic data. The government released the February personal consumption expenditures price index, which the Federal Reserve uses as its primary inflation gauge. The index rose 0.4% for the month and hit 3.0% over the past year. This yearly number still sits well above the 2.0% target set by the central bank.
Economists worry about these inflation numbers because they only cover February. The data completely misses the massive oil price spikes caused by the recent war in Iran. Heather Long, chief economist at Navy Federal, pointed out that inflation already ran too hot before the conflict even started. She expects consumer prices to climb much higher this spring. High prices will likely force the Federal Reserve to keep interest rates high for the foreseeable future.
Other economic reports painted a mixed picture of the American economy. Personal income for consumers fell 0.1% in February. The Bureau of Economic Analysis also revised its economic growth estimate for the fourth quarter of 2025 down to just 0.5%. Meanwhile, 219,000 Americans filed for initial jobless claims last week, beating analyst expectations. On a brighter note for individual stocks, Constellation Brands jumped 8.4% after the company reported massive quarterly revenue driven by strong sales of its Modelo Especial and Corona beers.
