The Dow Jones Industrial Average rose on Tuesday after a successful session, as traders weighed expectations of a Federal Reserve rate cut and the state of artificial intelligence trading.
The index of blue-chip companies increased by 701 points, or 1.5%. The S&P 500 rose 1%, while the Nasdaq Composite rose 0.7%. That marks a reversal from the losses seen earlier in the day. At session lows, the S&P 500 fell about 0.7%, while the Dow and tech-heavy Nasdaq fell more than 100 points, 0.2% and more than 1%, respectively.
Investors continue to monitor any news that may affect the Federal Reserve’s upcoming monetary policy decision. Markets are pricing in about an 83% chance of the Fed cutting interest rates by a quarter of a percentage point in December, according to CME’s FedWatch tool.
Expectations rose slightly after Bloomberg reported that White House National Economic Council Director Kevin Hassett was considered a front-runner to be the next Fed chairman. Investors see Hassett as someone more likely to push the central bank toward the lower interest rate regime supported by President Donald Trump. Treasury Secretary Scott Bessent told CNBC on Tuesday that there is a “very good chance” Trump will “announce something before Christmas.”
The likelihood has increased since New York Fed President John Williams said on Friday that there is room to cut interest rates “in the near term.”
“Before Friday we had a 40% chance of a Fed rate cut. Now we have an 80% chance. I’ve never seen such volatility and expectations for a Fed rate cut within days. The market is hyper-focused on this issue,” said Ron Albahary, chief investment officer at LNW. “I can’t predict the future, but the narrative seems to be going for a Fed rate cut on Dec. 10, which will support Santa growth.”
Alphabet was the winner of Tuesday’s session, trading up more than 1% and hitting a new record high, after The Information, citing sources, reported that Meta Platforms is considering spending billions of dollars on Google’s parent company’s AI chips, SEEbiz reports.
“As computing gets cheaper, is that going to increase spending? Yes, it’s probably going to increase spending and demand for it. I think we’re seeing that in real time, with Meta buying chips from Google,” Albahary told CNBC. “I think that’s a good sign for the broader AI space.”
Between Meta reportedly considering buying Alphabet chips and the latter last week announcing its upgraded AI model known as Gemini 3, the CIO is confident that the wider economy will benefit from artificial intelligence. He noted that the potential drop in computing costs from now on could make it much easier for non-tech companies to “take advantage of productivity gains and drive earnings growth.”
However, with Nvidia shares down nearly 3% following the report, investors could take it as a sign that the firm’s dominance in AI chips is under threat.
