U.S. stocks deepened their comeback on Monday, with the tech-heavy Nasdaq Composite index scoring its best session since May — after nearly slipping into correction territory last week.
By the time the closing bell rang out, the Nasdaq had tallied a gain of 2.7%, its biggest one-day advance since May 12. Since the market opened on Friday, the index has gained 3.6%, its strongest two-day showing since May 13, according to Dow Jones Market Data.
This marked a notable turnaround for the index, which had fallen by as much as 8.6% from its Oct. 29 record closing high at Friday’s intraday low. That brought it close to correction territory, typically defined as a drop of 10% or more from a recent high. Friday’s advance didn’t stop the Nasdaq from tallying a third-straight week in the red, FactSet data showed.
The upshot is that, after leading the slump earlier in the month, stocks tied to the artificial-intelligence trade have found themselves back in the lead. The S&P 500’s communication-services sector rose by nearly 4% on Monday — receiving a big boost from Google parent Alphabet Inc., which is riding a wave of enthusiasm since Google last week introduced its Gemini 3 AI model to the public. Alphabet shares rose by 6.3% on Monday, while Broadcom Inc., Celestica Inc. and Lumentum Holdings Inc. all benefited from their business relationships with Alphabet, tallying double-digit gains.
“Clearly, the big theme that’s driving the market on Monday is Gemini 3. That’s driving Google, that’s driving Broadcom, and that’s clearly having a very significant effect on tech,” said Joseph Shaposhnik, founder and portfolio manager of the Rainwater Equity ETF, which owns shares in Broadcom.
At the same time, shares of other AI winners, including Nvidia Corp. and Microsoft Corp., lagged. This spurred talk about a rotation within the AI trade that could further benefit Alphabet and its allies over the coming months, at the expense of companies more closely tied to OpenAI, according to commentary shared with MarketWatch by a trader at Mizuho Securities. Since launching ChatGPT in late 2022, OpenAI has been credited with sparking the AI craze.
Small caps, value stocks also climb
While the AI trade found itself back in the driver’s seat, Monday’s rally was notably broad. Healthcare stocks, which had outperformed while much of the market struggled earlier this month, continued to climb. Vanguard Health Care ETF, which tracks a broad index of healthcare names, tallied a fresh record closing high at $289.89, after gaining 0.7% Monday.
Small caps also had another strong showing. The Russell 2000 rose by 1.9% on Monday, FactSet data showed, expanding on its 2.8% gain from Friday. This marked the small-cap index’s strongest two-day stretch since August, Dow Jones Market Data showed.
Portfolio managers chalked up the sudden turnaround for small caps to rising expectations that the Federal Reserve will deliver another interest-rate cut next month. Futures traders were pricing in more than an 80% chance of a Fed rate cut in December, according to data from CME Group, after Fed governor Christopher Waller early on Monday joined a group of senior Fed officials calling for another cut. Expectations for a December rate cut had fallen to around 40% earlier in November.
Speculative names like quantum-computing stocks IonQ Inc. and Rigetti Computing Inc., along with clean-energy play Bloom Energy Corp., were among the biggest contributors to the Russell 2000’s Monday advance.
“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,” George Cipolloni, a former portfolio manager at Penn Mutual Asset Management, told MarketWatch. “Small caps are super interest-rate sensitive.”
Where are we headed next?
Strong performance by the S&P 500 index on the Monday before Thanksgiving typically bodes well for the rest of the week.
Over the past 20 years, a strong start on the Monday prior to Thanksgiving overwhelmingly preceded gains for the rest of the week. Only once — in 2014 — was a Monday advance for the S&P 500 not followed by more gains during the remaining two-and-a-half trading days during the holiday shortened week, as the table below shows. Stocks typically rise during Thanksgiving week, according to an analysis from Bespoke Investment Group.
The S&P 500 gained 1.6% to finish at 6,705.12 on Monday, its best session in six weeks, while the Dow Jones Industrial Average rose by 202.86 points, or 0.4%, to finish at 46,448.27, according to Dow Jones Market Data.
