The Nasdaq 100 closed at a record on Monday as AI-driven earnings growth overshadowed the Federal Reserve's latest rate hike. Falling oil prices and yields added fuel, while markets now turn to Thursday's Trump-Xi summit and the fate of the U.S.-China tariff truce.
The Nasdaq 100 surged 2.8% to a record close on Monday, its best session since early August, as investors concluded that AI-driven earnings growth has made the Fed's latest rate hike a secondary concern. Meta added approximately 12% in the same session, boosted by the breakout success of its AI agent app, Muse.
U.S. crude oil tumbled 4.5% and Brent fell 3.4%. That drop pulled the 10-year Treasury yield down more than four basis points to 4.95%. Lower energy prices ease the inflation outlook directly, and a falling long yield loosens the discount rate applied to growth stocks' future cash flows. Both moves arrived as a gift to the Nasdaq's most rate-sensitive names.
Fed's rate path favors growth stocks
The Fed raised its benchmark rate by 25 basis points last week to a target range of 3.75%-4.00%, its first increase since 2023. Projections released alongside the decision show the policy rate peaking at 4.00%-4.25% by year-end before holding steady through 2027 — well below the 5.5% ceiling hit in the prior tightening cycle. That ceiling matters because long-duration equities are sensitive to where rates stop, not just where they are heading.
Other central banks moved on a similar calibrated path. The Bank of Japan raised rates to a 31-year high of 1.25% last week. The European Central Bank has hiked twice in 2026. The Reserve Bank of Australia has raised rates three times this year to 4.35%.
Market focus shifts to Trump-Xi summit
The week's central event is the Trump-Xi summit scheduled for Thursday at the White House, with Boeing orders, rare earths, and AI regulation on the agenda. Markets are focused chiefly on whether the U.S.-China tariff truce, currently set to expire on November 10, will be extended into 2027. According to Yardeni Research: "It's arguably the most consequential encounter of either man's presidency."
A truce extension would remove the single largest binary risk overhanging U.S. multinationals and could trigger a broader year-end equity advance before November's midterm election results reshuffle the fiscal policy outlook. Failure to extend the truce by November 10, however, risks reigniting triple-digit tariff escalation that would disproportionately hit semiconductor supply chains — the same stocks that led Monday's rally.
Yardeni also noted that Chinese exports surged 25% year over year in August after rising 23.9% in July. Chinese shipments to the United States are up 6.1% so far this year, despite U.S. tariffs aimed at curbing them.
Source: Investing.com
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