Wall Street surges as mega caps rally on Fed bets

U.S. equities surged Monday as investors piled into mega cap technology stocks and other growth oriented names after fresh comments from Federal Reserve officials increased market expectations that the central bank will reduce interest rates in December. At 11:40 a.m. ET the Dow was up about 0.54 percent, the S&P 500 about 1.33 percent and the Nasdaq about 2.26 percent, reversing a month long selloff that had gnawed at benchmark indexes.

Alphabet jumped roughly 4.6 percent, Tesla rose more than 6 percent and Broadcom surged around 10 percent, underscoring the concentration of gains among the largest market capitalizations. Traders priced in roughly a 77 percent chance of a 25 basis point cut in December according to CME Group’s FedWatch Tool, a dramatic shift in monetary policy expectations that has been the primary driver of risk assets today.

Market attention focused on dovish comments by Fed Governor Christopher Waller and New York Fed President John Williams, which investors interpreted as signaling greater willingness within the Fed to ease policy. Those remarks helped tamp down recession fears that had been reflected in the recent pullback by growth stocks. Communication services and chip stocks led sector strength, reflecting a rotation back into high multiple names that benefit most from lower real yields.

The rally extended beyond tech. Healthcare insurers and some hospital operators rose amid reports the White House is weighing a short term extension of Affordable Care Act subsidies, a development that would support revenue prospects for insurers while reducing uncertainty about health coverage costs in the near term. The combination of looser monetary expectations and potential fiscal policy moves has shifted the balance of risks for corporate earnings and consumer finance.

Despite the optimism, traders and strategists cautioned that volatility could return as economic data flow resumes after a prolonged government shutdown and as Fed officials remain divided on policy. A shift in key inflation or jobs data could quickly unwind the present market pricing, exposing highly valued growth stocks to sharp reversals. The concentrated nature of the rally also raises concerns about market breadth and the implications for small cap and value sectors that have lagged.

On a policy level the market reaction highlights the influence of central bank communications on asset prices, and the extent to which investors will reprice future policy moves based on incremental signals. A 25 basis point cut in December, if delivered, would reduce the policy rate gap with market yields and could further compress credit spreads, boosting leverage sensitive sectors.

Looking beyond the immediate moves, the episode underscores a larger trend of heightened sensitivity to Fed messaging and to fiscal policy pivots. With investors assigning a high probability to easing, valuations for long duration assets have expanded, making the market more vulnerable to any reversal in economic data or shifts in policymaker rhetoric. The near term outcome will hinge on incoming macro data and the degree to which the Fed coalesces around a unified path for rates.