Markets Extend Gains as Rate Cut Bets Solidify; AI Buzz Fuels Big Tech Divergence

U.S. equities climbed for a third straight session as investors grew increasingly confident the Federal Reserve could begin cutting rates as early as December. While broader indices were buoyed by easing bond yields and upbeat sentiment, chip stocks lagged on concerns about competitive shifts in AI hardware. Treasury yields continued to slide, helping fuel a potential year-end rally. Economic data showed weakening consumer sentiment and moderating retail and payroll trends, reinforcing dovish expectations.

Key Headlines & Market Movers:

• Rate Cut Odds Surge on Mixed Data: A batch of delayed economic reports added weight to bets on Fed easing. Retail sales for September rose a modest 0.2% (below estimates), while producer inflation met forecasts but showed weaker core price gains. The consumer confidence index slid sharply to 88.7, its lowest reading since April, suggesting growing job market anxiety. These signals pushed the CME FedWatch odds of a December rate cut to over 80%.

Treasury Rally Helps Lift Equities: The 10-year yield dipped to 4.00%, reflecting investor expectations for looser monetary policy and signs of a cooling labor market. Falling yields added momentum to equity markets, particularly rate-sensitive segments, and helped offset recent volatility. The dollar also weakened further, supporting risk assets globally.

• AI Arms Race Pressures Semis: Semiconductor names were under pressure after reports that Meta may opt for Google’s AI chips in its data centers. Nvidia slid 2.6%, while AMD and Qualcomm also dropped. Conversely, Alphabet rose 1.5% as enthusiasm for its new Gemini 3 AI model remained strong. Broader tech names like Apple, Meta, and Amazon posted gains, aiding Nasdaq resilience.

Retail Earnings Surprise to the Upside: Retailers Kohl’s and Abercrombie & Fitch saw dramatic post-earnings gains of 42% and 37%, respectively, highlighting selective consumer strength. Zoom added nearly 10%, while Burlington Stores dropped 12% on earnings disappointment. These divergent results underline ongoing shifts in consumer behavior amid economic uncertainty.

S&P 500 Sector Performance

Looking Ahead

Markets are entering the holiday-shortened week on a strong note, with rate cut optimism helping to stabilize sentiment. With little fresh data ahead of the December FOMC meeting, attention may shift to Fed commentary and potential developments around Fed chair succession. Thin trading post-Thanksgiving could bring volatility, but barring surprises, the setup supports a constructive finish to the month.