Wall Street rallies on tech rebound, rising rate cut bets

Wall Street stocks advanced on Monday, extending Friday’s rally as increased odds that the U.S. Federal Reserve will lower its key Fed funds target rate in December helped investors look past concerns over inflated tech valuations.

U.S. indexes embarked on a holiday-shortened week with solid gains, with gains in the “Magnificent Seven” group of artificial intelligence-related momentum stocks sending the tech-heavy Nasdaq up 2.7%.

A flurry of economic reports, belatedly released after the recent six-week government shutdown, hinted at labor market weakness and stubbornly elevated inflation, which has bolstered investor optimism that the Fed will implement its third and final interest rate cut of 2025 at the conclusion of its December monetary meeting.

Investors ‘breathe sigh of relief’

Dovish commentary from Fed Governor Christopher Waller and New York Fed President John Williams lent some support to that optimism, although other policymakers voiced dissenting opinions.

“When New York Fed President John Williams told us that a December rate cut was still on the table, I think that gave investors the reason to breathe a sigh of relief,” said Sam Stovall, chief investment strategist of CFRA Research in New York.

Financial markets are pricing in a 79.1% likelihood of that occurring, up from 42.4% a week ago, according to CME’s FedWatch tool.

The unusually timed release of economic data is set to continue this week, with retail sales, producer prices, and new orders for durable goods joining independent indicators such as Case-Shiller home prices, the Conference Board’s consumer confidence report and the National Association of Realtors’ pending home sales data.

Third-quarter reporting season is drawing to a close. As of Friday, nearly 95% of the companies in the S&P 500 have reported, 83% of which delivered better than expected earnings. Analysts now expect third-quarter aggregate earnings growth of 14.7% for constituents of the bellwether index, a significant improvement over the 8.8% estimate on October 1, according to LSEG data.

The Dow Jones Industrial Average (.DJI), rose 299.92 points, or 0.65%, to 46,545.33, the S&P 500 (.SPX), gained 108.81 points, or 1.65%, to 6,711.80 and the Nasdaq Composite (.IXIC), gained 601.87 points, or 2.70%, to 22,874.95.

Among the 11 major sectors of the S&P 500, communication services (.SPLRCL), enjoyed the largest percentage gain. Consumer staples (.SPLRCS), and energy stocks (.SPNY), were lower.

The U.S. holiday shopping season kicks off this week, starting with Thursday’s Thanksgiving holiday.

The health of the consumer, who shoulders about 70% of the U.S. economy, will be assessed for any signs of weakness amid increased layoff announcements and weak survey reports. Even so, the National Retail Federation expects holiday sales to top $1 trillion for the first time.

Earnings from consumer-oriented companies such as Best Buy (BBY.N), are expected later this week.

Tech valuation worries linger

AI-bellwether Nvidia’s (NVDA.O), last week failed to assuage looming fears of a potential AI bubble.

The S&P 500 and Nasdaq remain on track for monthly losses.

Deutsche Bank helped revive investor risk appetite after projecting the S&P 500 would reach 8,000 by the end of next year, the most bullish forecast among major global brokerages.

Bristol-Myers (BMY.N), gained 4.2% after European rival Bayer (BAYGn.DE), unveiled positive late-stage data for its cardiovascular drug, boosting confidence in Bristol-Myers’ experimental drug milvexian.

Centene (CNC.N), and Oscar Health (OSCR.N), gained 5.3% and 18.9%, respectively, following a report that Trump is considering extending the Affordable Care Act’s subsidies for two years.

Advancing issues outnumbered decliners by a 2.51-to-1 ratio on the NYSE. There were 87 new highs and 59 new lows on the NYSE.

On the Nasdaq, 3,265 stocks rose and 1,337 fell as advancing issues outnumbered decliners by a 2.44-to-1 ratio.

The S&P 500 posted 19 new 52-week highs and two new lows while the Nasdaq Composite recorded 100 new highs and 102 new lows.