Building on the recovery from Friday, U.S. markets continued to rise on Monday.
After almost falling into correction territory last week, U.S. equities continued their recovery on Monday, with the tech-heavy Nasdaq Composite index recording its best session since May.
The Nasdaq COMP saw its largest one-day rise since May 12 as the closing bell rang out, with a gain of 2.7%. According to Dow Jones Market Data, the index has increased 3.6% since the market began on Friday, its best two-day performance since May 13.
The index had dropped as much as 8.6% from its record closing high on October 29 at Friday’s intraday low, so this represented a significant turnaround. That put it in the neighborhood of correction territory, which is usually characterized as a decline of at least 10% from a recent peak. The Nasdaq had a third consecutive week in the red, despite Friday’s gain, according to FactSet statistics.
In summary, companies associated with the artificial intelligence trade have regained the lead after spearheading the decline earlier in the month. The communication-services sector of the S&P 500, XX:SP500.50, increased by about 4% on Monday thanks to a significant lift from Alphabet Inc. (GOOGL) (GOOG), the parent company of Google, which is experiencing a surge in interest following Google’s public unveiling of its Gemini 3 AI model last week. Alphabet’s stock increased 6.3% on Monday, while double-digit gains were recorded by Broadcom Inc. (AVGO), Celestica Inc. (CLS), and Lumentum Holdings Inc. (LITE) as a result of their business partnerships with Alphabet.
“Gemini 3 is undoubtedly the major theme propelling the market on Monday. According to Joseph Shaposhnik, founder and portfolio manager of the Rainwater Equity ETF RW, which owns shares in Broadcom, “that’s driving Google, that’s driving Broadcom, and that’s clearly having a very significant effect on tech.”
Meanwhile, the stock of other AI winners, such as Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA), declined. According to remarks shared with MarketWatch by a trader at Mizuho Securities, this sparked discussion about a rotation inside the AI trade that might further favor Alphabet and its friends over the coming months, at the expense of companies more directly related to OpenAI. OpenAI has been credited for igniting the AI frenzy after launching ChatGPT in late 2022.
Value and small-cap stocks are rising as well.
Even though the AI trade regained its lead, Monday’s surge was noticeably wide. Earlier this month, when most of the market was struggling, healthcare companies outperformed and kept rising. After rising 0.7% on Monday, the Vanguard Health Care ETF VHT, which follows a wide index of healthcare companies, reached a new closing high of $289.89.
The little caps also performed well. According to FactSet statistics, the Russell 2000 RUT increased 1.9% on Monday, building on its 2.8% rise on Friday. According to Dow Jones Market Data, this was the small-cap index’s best two-day run since August.
The sharp recovery for small-cap stocks was attributed by portfolio managers to growing anticipation that the Fed will lower interest rates again next month. According to statistics from CME Group, when Fed Governor Christopher Waller joined a group of senior Fed officials pushing for another rate cut early on Monday, futures traders were pricing in more than an 80% chance of a Fed rate decrease in December. Earlier in November, expectations of a rate cut in December had dropped to about 40%.
Among the major contributors to the Russell 2000’s Monday increase were speculative names such as clean-energy play Bloom Energy Corp. (BE) and quantum-computing equities IonQ Inc. (IONQ) and Rigetti Computing Inc. (RGTI).
“We’re now seeing strength in some of the riskiest areas of the market, which is a complete reversal of what we saw over the past few weeks,” former Penn Mutual Asset Management portfolio manager George Cipolloni said to MarketWatch. “Small caps are super interest-rate sensitive.”
Next, where are we going?
On Monday before Thanksgiving, a strong showing by the S&P 500 index SPX usually indicates a positive outlook for the remainder of the week.
Gains for the remainder of the week have largely preceded a solid start on the Monday before Thanksgiving over the previous 20 years. The table below demonstrates that the only time a Monday advance for the S&P 500 was not followed by more gains during the remaining two-and-a-half trading days of the holiday-shortened week was in 2014. According to a Bespoke Investment Group report, stocks usually increase throughout Thanksgiving week.
