The Nasdaq closed at a record high Monday and the S&P 500 also rose as investors gauged the latest economic data while looking toward the Federal Reserve's final policy announcement of the year later in the week to gauge the path of interest rates.
Markets have almost completely priced in a rate cut at the conclusion of the Fed's two-day policy meeting on Wednesday, with a 95.4% chance for a cut of 25 basis points (bps), according to CME's FedWatch Tool.
"Maybe the market was a bit oversold last week and with almost a 100% likelihood that the Fed will cut on Wednesday, the only outstanding question is what kind of rhetoric, what kind of notes will investors get regarding guidance," said Sam Stovall, chief investment strategist of CFRA Research in New York.
"It is likely to be a hawkish cut, meaning they will cut rates but the Fed will be talking about how they are still data-dependent and as a result there could be fewer cuts next year than people are thinking."
On the economic front, S&P Global said its flash manufacturing PMI dropped to 48.3 this month, below the 49.8 reading of economists polled by Reuters and the 49.7 in November. In addition, a gauge of factory production hit its lowest level since May 2020 ahead of the prospect of higher tariffs increasing the cost of imported raw materials next year.
According to preliminary data, the S&P 500 gained 23.63 points, or 0.39%, to end at 6,074.72 points, while the Nasdaq Composite gained 243.92 points, or 1.22%, to 20,174.53. The Dow Jones Industrial Average fell 108.52 points, or 0.25%, to 43,719.54. The S&P 500 snapped a three-week streak of gains last week and the Dow also fell, while the Nasdaq managed a fourth straight week of gains.
Most megacap and growth stocks gained ground, with Google parent Alphabet and Tesla up sharply to help lift the communication services and consumer discretionary sectors as the best performing of the 11 major S&P sectors. Wedbush Securities raised its price target on Tesla to a Wall Street high of $515.
Ahead of the Fed decision, retail sales data will be eyed on Tuesday for signs of continued strength in the consumer.
The S&P 500 has rallied more than 27% this year as optimism over growth in artificial intelligence-related companies, the start of the Fed's rate-cutting cycle, a resilient economy and expected pro-business policies from Donald Trump's incoming administration have helped boost equities. The benchmark index is up more than 58% over the past two years, which would mark its strongest two-year period since a 65.9% surge in 1997 and 1998.
Honeywell International climbed after the industrial conglomerate said it was exploring a separation of its aerospace business.
Cryptocurrency stocks rose as bitcoin jumped above $107,000, continuing its rally since the U.S. presidential election on expectations the new administration will be supportive of cryptocurrencies.
Shares of Super Micro Computer, among those stocks set to be removed from the Nasdaq 100, tumbled.
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