Stocks rally on rising hopes for December rate cut and renewed AI enthusiasm

Stocks rebounded Monday as investors digested new comments from top Fed officials and AI companies rebounded from last week.

The S&P 500 ended the day up 1.6%. The Nasdaq Composite ended the session up 2.7%, its best day since May. The S&P 500 was on the verge of achieving the same feat earlier in the session.

The rally comes after two senior Fed officials expressed support for lower interest rates at the central bank’s upcoming rate-setting meetings, scheduled for Dec. 9-10.

Mary Daly, president of the Federal Reserve Bank of San Francisco, told the Wall Street Journal that she supported lowering rates because of the “vulnerable” labor market. Although Daly is not currently a voting member of the Fed’s Open Market Committee, “she has rarely publicly taken a position at odds with Fed Chairman Jerome Powell,” the Journal noted.

Federal Reserve Governor Christopher Waller, who has a permanent vote on interest rates, also expressed concerns about the labor market on Fox Business Network.

“My concern is mainly [the] labor market as part of our dual mandate,” Waller said. “So I am advocating for a rate reduction at the next meeting.”

While Waller has been advocating a taper for months, his and Daly’s views come as markets try to determine how the next Fed meeting will play out. In recent days, markets have deemed a rate cut unlikely, amid a wave of cautious comments from Fed officials.

That all changed on Friday, when New York Fed President John Williams signaled his support for a rate cut and raised the odds of a rate cut to around 60%. Williams is also vice chair of the Fed’s rate-setting committee.

As of Monday afternoon, the odds of a decline were higher than 85%, according to CME Group’s FedWatch, which tracks bets that traders place in the futures market on changes in interest rates.

Markets are closely tracking Fed officials because lower interest rates tend to lower borrowing costs, thereby increasing corporate profits and therefore stock returns.

At the same time, a strong rebound in large-cap technology stocks also pushed the indexes higher. Apple and Nvidia rose about 2%, Amazon shares jumped 2.5% and Alphabet shares jumped 6.3%.

Last week, Alphabet’s Google division announced a new AI model called Gemini 3.

Chipmakers for AI devices and services have also seen widespread enthusiasm. Broadcom rose more than 11%, while Micron jumped 8% and AMD rose 5.5%.