What the market expected. A quiet pre-holiday session. The ISM non-manufacturing index was forecast unchanged at 54.1, S&P Global’s final services reading was expected to confirm its 56.8 August flash, and initial claims were seen at 205,000. Nothing on the calendar looked capable of moving the tape ahead of Friday’s payrolls.

What it got. The ISM Services PMI came in at 55.4 for August, up 1.3 points from July and the strongest since February. Business activity rose to 61.7 from 59.1 and new orders to 60.9 from 57.2, a three-and-a-half-year high. Employment stayed in contraction at 47.8. The prices paid index climbed to 72.6 from 70.3, a level last seen in mid-2022, with respondents pointing repeatedly at tariff-driven input costs.

S&P Global’s final services PMI was revised down to 56.5 from the 56.8 flash, a marginal miss. Worth flagging that the calendar’s 56.8 “previous” was August’s own flash rather than July’s 54.6, so the month-on-month improvement is larger than the two figures side by side suggest.

Initial claims rose to 206,000 for the week ending 29 August against a 205,000 consensus. The prior week was revised up to 204,000 from the 203,000 the calendar carried, so the weekly increase is 2,000 rather than 3,000. The four-week average moved to 207,250.

What it did. On the textbook reading, accelerating services demand alongside input costs at a four-year high pushes rate cuts further out, lifts the discount rate and compresses long-duration multiples. The tape did the opposite. The S&P 500 closed up 1.06% at 7,747.71, the Nasdaq Composite gained 1.40% to 26,584.06, and the Dow added 1.18% to 53,686 for its best session since 4 August. The 10-year Treasury yield eased two basis points to 4.77%, and December gold settled 2.84% higher at $4,539.90.

The reason was a voice, not a number. Fed Governor Christopher Waller told a Reuters event before the open that he is willing to be patient, expects inflation to come down, and sees scope for a significant downward revision to core as well as growing disinflation from AI. A sitting governor’s read on September carried more weight than a diffusion index that measures how many firms saw costs rise, not by how much.

Attribution should stay honest. Strong results from Snowflake, HPE and Dell were lifting software and hardware independently, and volumes were thin before the long weekend. The prices figure is the one to carry into next week: services dominate the consumer basket, and 72.6 has not yet shown up in the inflation data.

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