"Market on fire": three major US equity indices hit records. Will the rally last?

All three key U.S. stock indices set new records at the close of exchanges on Monday, October 27. This happened for the second trading day in a row. Investors are in a very good mood entering the most important week of the reporting season, when five companies from the "Magnificent Seven" will publish their results at once, which is likely to include a new rate cut by the US Federal Reserve.

- The main U.S. stock index S&P 500 rose 1.23% and closed above the $6800 point mark for the first time. The index updated the record at the close for the 35th time this year.

-The Dow Jones Industrial Average blue-chip index rose 0.7% to 47,544.59

- The Nasdaq Composite index, heavily weighted toward technology companies, added 1.86% to 23,637.45 points.

- The Russell 2000 index of small-capitalization companies rose 0.28% to 2,520.4 points.

- The CBOE Volatility Index (VIX), known as the "Wall Street fear index," lost 3.5% to 15.79% (the "worry" level starts at 20 points).

- Risk appetite has increased: in addition to stocks, all major cryptocurrencies also rose in price on Monday. For example, bitcoin added more than 1%, while Ethereum, the second largest cryptocurrency by market capitalization, gained more than 2%, CoinGecko shows. At the same time, spot gold prices plunged by 2.8% at once: the price fell below $4000 per troy ounce. Short-term bonds also fell, writes Bloomberg.

The main reason for investors' optimism on Monday was the reduction of tensions between the United States and China, CNBC writes. Representatives of the two countries over the weekend announced progress in negotiations, and now the market is waiting for a trade deal at the meeting between U.S. President Donald Trump and Chinese President Xi Jinping, expected this week. "I have a lot of respect for Chairman Xi, and we will get a deal," Trump said in a CNBC statement on Monday.

The deal could involve a postponement of China's restrictions on rare earth exports, Trump's refusal to impose 100 percent duties on imports from the PRC that are set to take effect Nov. 1, as well as China's resumption of purchases of U.S. soybeans and the final terms of a deal to sell the U.S. business to TikTok, according to CNBC.

Shares of chip and processor makers appreciated strongly on Monday. This sector is the most vulnerable to tensions between the U.S. and China, CNBC noted. Nvidia shares rose by 2.8%, Broadcom shares - by 2.2%, TSMC receipts - by 1.1%. Qualcomm shares reached an all-time high in trading on the stock exchange after the announcement of new chips for artificial intelligence, which will compete with the developments of Nvidia and AMD.

The market is waiting for a new reduction in interest rates following the results of the Fed's meeting on October 28-29: taking this into account, the forecasts for corporate profits are also getting brighter, Bloomberg noted. This week, a number of the largest companies in the U.S. market will present their quarterly results: Alphabet, Amazon, Apple, Meta and Microsoft. Apple shares rose on Monday by 2.3% and set a new record at the close. Tesla stock prices jumped by 4% at once.

Some Wall Street analysts quite share investors' optimism about relations with China and expect the trade agreement to have a positive impact on the market. "A lot of the forecasts for the [tech] sector were made without the benefit of China, so if China comes back into the equation, that's probably going to have a pretty optimistic effect on the market [...] Small and mid-cap companies are trading at a very large discount relative to the large ones, so if the interest rate cuts continue and there's no prospect of a recession, they should also perform very well," said Sam Stovall, senior investment strategist at CFRA Research, as quoted by CNBC.

But some point out that the core of the U.S.-China standoff goes much deeper than trade tensions under Trump. "While the moves [in U.S.-China relations] have lifted market sentiment, analysts remain skeptical that deeper issues - like national security and technological rivalry - will be fully resolved. Nevertheless, investors have picked up the risk-on mood," said City Index and Forex.com analyst Fawad Razaqzada, who was quoted by Bloomberg.

With the U.S. Federal Reserve close to another rate cut, the continuation of the rally will likely depend on the release of crucial reports this week, Morgan Stanley E*Trade analyst Chris Larkin added in a Bloomberg statement.

"The markets are on fire. This reflects strong optimism about future earnings potential [...] Needless to say, the trend is on our side," agreed Navellier & Associates Investment Director Louis Navellier.

This article was AI-translated and verified by a human editor