Markets Surge on Rate Cut Hopes; Tech Leads Rebound

Markets kicked off the holiday-shortened week with a sharp rally, led by technology stocks, as expectations grew that the Federal Reserve may cut interest rates at its December meeting. The S&P 500 logged its best session in six weeks, gaining 1.5%, while the Nasdaq 100 jumped 2.6%, driven by a rebound in AI-related stocks and dovish Fed commentary. Treasury yields fell and Bitcoin rebounded strongly from weekend lows. Markets are pricing in a nearly 85% chance of a December rate cut, reviving the "year-end melt-up" narrative despite lingering concerns over data lags and economic ambiguity.

Key Headlines & Market Movers:

• Fed Commentary Fuels Rate Cut Optimism: A trio of Fed officials, including Governor Waller, San Francisco’s Mary Daly, and New York's John Williams, voiced support for near-term rate cuts, boosting investor confidence. With official economic data delayed due to the earlier government shutdown, investors are relying on alternate indicators. Money markets now assign an 85% probability to a December cut, up from 70% earlier in the day. Strategists suggest Fed Chair Powell may be using ambiguous data as cover for one final insurance cut to support a slowing labor market.

Tech Stocks Rebound, Led by AI and Chips: AI-related names drove Monday’s rally after a sharp pullback last week. Alphabet surged 6.3% after gains of over 8% last week, buoyed by the launch of its Gemini 3 AI model. Tesla gained nearly 7% after Elon Musk touted ambitious AI chip plans. Nvidia recovered 2% after last week’s 6% drop despite strong earnings. Chipmakers Broadcom and Micron jumped 11% and 8%, respectively, helping fuel the Nasdaq's gains.

• Bitcoin and Commodities Recover: Bitcoin reversed course after hitting weekend lows under $84,000, climbing back to near $89,200. Gold and oil also moved higher, with WTI crude up 1.5% as investors digested geopolitical headlines and holiday-related demand projections. Gold rose 1.2% as falling yields and a softening dollar revived demand for safe-haven assets.

Healthcare Volatility - Winners and Losers: Novo Nordisk fell 5.5% after a key Alzheimer’s drug trial failed to show a benefit for its blockbuster weight-loss compound. Meanwhile, Oscar Health soared 22%, joined by Centene and Molina, after reports that the White House may seek to extend Obamacare subsidies with updated eligibility criteria, potentially supporting the broader healthcare sector.

S&P 500 Sector Performance

Looking Ahead

The rest of the week brings key but delayed data, including September retail sales and durable goods orders. Wednesday’s jobless claims will be closely watched as a proxy for labor market health in the absence of payroll data. With markets closed Thursday and a half-day Friday, liquidity may thin, but the path remains open for continued gains if incoming data doesn't undercut the Fed cut narrative.

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