Equity markets rallied on Thursday as investors digest a relatively tame inflation print and additional indications that the labor market is easing, reinforcing expectations that the Federal Reserve will trim interest rates for the first time this year. The Dow Jones Industrial Average rose roughly 0.8%—about 260 points—while the S&P 500 gained around 1.1% and the Nasdaq Composite outperformed with a 1.6% advance, according to intraday price action compiled by Bloomberg.

The burst of risk appetite followed data showing consumer-price measures came in below the consensus and other labor-market signals that suggest hiring momentum has softened. Benchmark 10-year Treasury yields fell sharply, sliding about 15 basis points to trade near 4.3%, a move that helped lift interest-rate-sensitive sectors and pushed mortgage rates down modestly. Fed funds futures priced a notably higher probability of at least one rate reduction by year-end, with implied odds rising to roughly two-thirds.

"Investors are responding to a very clear narrative: inflation is moderating and the job market is cooling enough that the Fed can ease without immediate risk of re-igniting price pressures," said a market strategist at a major Wall Street bank. "That spurs a re-leveraging into growth and cyclical stocks."

The data set that spurred the rally included a cooler-than-expected monthly CPI print and a series of labor indicators pointing to slower hiring growth. Labor-market softness has been gradual—job openings remain elevated relative to pre-pandemic norms—but the pace of monthly payroll gains has decelerated from last year’s breakneck levels. Economists caution that a single month does not establish a trend, but market pricing is highly sensitive to any signals that shift the outlook for monetary policy.

Federal Reserve officials have repeatedly said they will be guided by incoming data. Chair Jerome Powell has emphasized patience, but the combination of easing inflation and a softer labor market strengthens the case for policymakers to consider loosening policy if the pattern persists. A pivot would have tangible effects: lower short-term rates typically reduce banks’ funding costs, lift equity valuations, and ease financing conditions for households and businesses.

Still, risks remain. Services inflation—especially in areas tied to wages and housing—has proved stickier than headline measures, and a premature easing could jeopardize recent gains in combating price pressures. Corporate earnings also face pressure from higher borrowing costs earlier this year, and any sign of a renewed inflation uptick would quickly reverse market jubilation.

For now, investors are pricing a near-term soft landing scenario: inflation gradually returning toward target ranges while growth cools modestly. That outlook has pushed money from safe-haven assets into equities and credit, compressing spreads and lifting equity valuations. How durable the move becomes will depend on a steady stream of benign data and the Fed’s evolving rhetoric—factors that will determine whether today's rebound is the start of a sustained rally or a temporary reprieve in a choppy market.