U.S. stocks rise for a third day amid hopes of a Fed rate cut. Santa's rally to be?

All three major U.S. market indices rose for the third day in a row as investors increasingly expect the Fed to cut rates in December. Market sentiment was also influenced by the news that Kevin Hassett, a supporter of low rates, became the favorite in the race to replace Jerome Powell as head of the Fed. Traders now estimate the probability of a 25 basis point rate cut at 85%.

- The Dow Jones Industrial Average index of blue chips rose by 1.4% at the end of trading on November 25, having recovered the morning decline.

- The S&P 500 broad market index added 0.9%.

- The Nasdaq Composite Technology Sector Index rose 0.7%.

- Alphabet's stock rose about 1.5%, hitting an all-time high, following a report that Meta is considering investing billions of dollars in its AI chips. This supported other AI stocks including Broadcom, AMD and Meta. However, investors saw this as bad news for Nvidia, with the chipmaker's shares falling 7% throughout the day, but slowed to a 2.6% decline by the close of trading.

The recovery in stocks was fueled by growing optimism that the Federal Reserve will cut interest rates in December, notes Yahoo Finance. According to CME FedWatch, traders now estimate the probability of a 25 basis point cut at 85%, up from about 40% late last week, CNBC notes.

"I've never seen such volatility in rate expectations in just a few days. The market is incredibly focused on this issue," LNW Chief Investment Officer Ron Albahari told CNBC. - "I can't predict the future, but it looks like the narrative is shifting toward a December rate cut on Dec. 10, which would support the traditional Santa Claus rally.

Investors continue to keep a close eye on any news that could influence the upcoming Fed decision. Expectations received additional support after Bloomberg reported that Kevin Hassett, director of the White House National Economic Council, is seen as the main contender to become the next Fed chairman. Investors believe that Hassett is more likely to promote a low rate policy. The term of current Fed Chairman Jerome Powell expires in May 2026.

Despite stocks recovering for the third straight day, all three key indexes remain in negative territory through November, with the S&P 500 down more than 1%, the Nasdaq down more than 3%, and the Dow down more than 1%.

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