Stocks rose on Thursday as investors speculated that the U.S. and Mexico are getting closer to a resolution over immigration issues that would delay the tariffs threatened by President Donald Trump.
The Dow Jones Industrial Average gained 181.09 points to 25,720.66, bringing its gain for the week to more than 900 points and putting it on pace for its best week of the year. The rose 0.61% to 2,843.49 while the Nasdaq Composite gained 0.53% to 7,615.55.
The talks between U.S. and Mexican officials resumed Thursday afternoon after they failed to reach an agreement on Wednesday. Martha Barcena Coqui, Mexico's ambassador to the U.S., told CNBC on Thursday that negotiators had "a very good discussion, a very good debate."
The U.S. had asked Mexico to keep Central American asylum seekers and require migrants without proper documentation to stay in Mexico "for the duration of their immigration proceedings," CNBC previously reported. The talks are poised to continue at 5:30 p.m. ET Thursday at the State Department.
Stocks hit their highs of the day after Bloomberg News reported that the U.S. is considering a postponement to Trump's 5% tariff on all Mexican imports after the country's negotiators asked for more time to hash out a deal. The tariff is set to kick in on Monday.
Shares of companies with the most to lose from Mexico tariffs pared their losses on the new headlines. Shares of Ford, GM and Kansas City Southern took a noticeable jump, though the three still finished the day lower.
Thursday's gains followed the Dow's 500-point jump on Tuesday, its second-best session of 2019. The index's subsequent 200-point climb on Wednesday and Thursday's gains have pushed its week-to-date performance up more than 3.6%. The S&P 500 and Nasdaq are up 3.3% and 2.2%, respectively, this week. Both the Dow and S&P 500 are on pace for their best weeks since November.
The bulk of the market's sizable gains this week are due to comments from Federal Reserve Chairman Jerome Powell, who said on Tuesday the Fed will "act as appropriate to sustain the expansion," opening the door to rate cuts.
Powell's comments are "helpful and the markets are expecting some rate cuts," said Mike Baele, managing director at U.S. Bank Wealth Management. "The current data isn't the problem; it's the forecasts. The impact of what trade might do to the outlook has the attention of the Fed. It's a highly fluid situation because we don't know how any resolution on trade and tariffs will turn out. But to the extent that it affects the real economy, the Fed is willing to cut."
Traders are now pricing in a more than 90% chance of a September rate cut and about 60% probability of three rate cuts this year, according to the CME FedWatch tool. They hope an easing of monetary policy will make up for the damage to the economy inflicted by the trade battles with Mexico and China.
"Trump's surprise threat to impose tariffs on Mexico has broadened the trade dispute beyond China. The drag from increased trade tensions is starting to show up in weaker economic data," said Mark Haefele, global chief investment officer at UBS Global Wealth Management, in a note.
Trump ratcheted up tensions with China on Thursday, telling reporters that tariffs on Chinese goods could be raised by another $300 billion if necessary.
—CNBC's Elliot Smith contributed to this report.