US stocks rallied Monday as investors expressed optimism that lawmakers were nearing a deal to end the longest government shutdown in history.
The S&P 500 Index gained 1.1% at 12:40 p.m. in New York, paring an initial advance of as much as 1.3% earlier in the session. Meanwhile, the tech-heavy Nasdaq 100 Index rose 1.7% to snap a two-session skid.
“The stock market never sold off during the government shutdown, so the opening rally was a bit exuberant on the prospective deal to end the shutdown,” said Michael O’Rourke, chief market strategist at Jonestrading. “Investors continue to grapple with AI bubble concerns.”
The Senate moved closer to reopening the government on Sunday evening after a group of moderate Democrats broke with party leaders and voted to support a deal. The White House expressed support for the bipartisan deal to end the shutdown, a key development that makes it likely the government reopens within days. Hopes of an agreement helped advance several sectors.
Risk-on sentiment swept through cryptocurrencies and semiconductors, lifting the likes of Nvidia Corp., Advanced Micro Devices Inc. and Robinhood Markets Inc. However, shares of health-care insurers and hospitals fell as lawmakers came closer to ending the shutdown without securing an extension of Affordable Care Act subsidies.
With an end to the record-breaking shutdown in sight, so too is the return of key economic data. Traders were reliant on private data releases last week, which painted a picture of a softening labor market. Official government data should soon offer clearer insight into labor, inflation and the outlook for interest rates.
“With the shutdown ending this week, it’s unclear at this point how quickly economic data will ‘catch up,’ but the fact that we will be getting key economic reports is a general positive for markets,” said Tom Essaye of The Sevens Report.
Kathleen Brooks, research director at XTB, notes the delayed economic data could be “less market-friendly” and may not support a Federal Reserve rate cut in December.
“A big gain in the November jobs figures, or signs of an accelerating economy, could, ironically, weigh on stocks, as it would erode a pillar of their strength: hopes of another rate cut from the Federal Reserve,” Brooks said.
Bullish
Several Wall Street strategists see robust corporate earnings powering the US stock rally in 2026 as risks around an uncertain rates outlook prove short-lived. Morgan Stanley’s Michael Wilson said there were “clear signs” that an earnings recovery was underway and that US firms were enjoying better pricing power.
“While overhangs from Federal Reserve guidance and the shutdown have weighed on recent price action, these are temporary headwinds on the way to a solid 2026 driven by earnings growth,” Wilson wrote in a note.
Meanwhile, UBS Group AG strategists said they expect tech companies to again drive a bulk of US earnings growth next year, and forecast the S&P 500 to hit a record 7,500 points by the end of 2026.
However, questions remain about the sustainability of the artificial intelligence-powered rally that has seen the market reach new highs. Concerns over stretched valuations and spending on AI have dominated the discourse. Last week, a string of earnings from AI beneficiaries caused disappointment.
“If it weren’t for AI it’d be a lot harder to make the argument of why would you want to own equities at some pretty elevated valuations into a backdrop that’s cooling off a little bit from a macro perspective,” said David Miller, portfolio manager and chief investment officer at Catalyst Funds. “The AI narrative hasn’t gone away but you have to weigh the macro narratives in particular in the US, not just the AI trade.”
In terms of single stock moves, Pagaya Technologies Ltd. soared after the artificial intelligence-powered loan arranger reported third-quarter results that beat estimates. Meanwhile, Cogent Biosciences Inc. soared after the biotech reported positive results from a cancer drug trial.
Elf Beauty Inc. advanced after announcing the brand’s official launch at Ulta Beauty in Mexico. DoubleVerify Holdings Inc. advanced after Bank of America upgraded the digital-media measurement software company to buy from neutral.
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