Wall Street stocks closed higher on Monday, extending Friday's rally as increased odds that the U.S. Federal Reserve will lower its Fed funds target rate in December helped investors look past concerns about inflated tech valuations.
U.S. indexes embarked on the holiday-shortened week with solid gains, with strength in the "Magnificent Seven" group of artificial-intelligence-related momentum stocks putting the tech-heavy Nasdaq out front.
A spate 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, New York Fed President John Williams, and San Francisco Fed President Mary Daly lent some support to that optimism, although other policymakers voiced dissenting opinions.
"The street is falling into the line of thinking that a rate cut is coming in December," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.
Financial markets are pricing in an 85% likelihood of that occurring, up from 42.4% a week ago, according to CME's FedWatch tool.
The 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 rose 202.86 points, or 0.44%, to 46,448.27, the S&P 500 gained 102.13 points, or 1.55%, to 6,705.12 and the Nasdaq Composite gained 598.92 points, or 2.69%, to 22,872.01.
Among the 11 major sectors of the S&P 500, communication services enjoyed the largest percentage gain. Consumer staples and energy stocks were the only two sectors to close in negative territory.
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 are expected later this week.
TECH VALUATION WORRIES LINGER
AI bellwether Nvidia's 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 advanced 3.3% after European rival Bayer unveiled positive late-stage data for its cardiovascular drug, boosting confidence in Bristol-Myers' experimental drug milvexian.
Centene and Oscar Health jumped 4.6% and 22.3%, respectively, following a report that Trump is considering extending the Affordable Care Act's subsidies for two years.
Advancing issues outnumbered decliners by a 2.3-to-1 ratio on the NYSE. There were 116 new highs and 76 new lows on the NYSE.
On the Nasdaq, 3,187 stocks rose and 1,478 fell as advancing issues outnumbered decliners by a 2.16-to-1 ratio.
The S&P 500 posted 22 new 52-week highs and three new lows while the Nasdaq Composite recorded 112 new highs and 122 new lows.
Volume on U.S. exchanges was 18.32 billion shares, compared with the 19.94 billion average for the full session over the last 20 trading days.
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