AI Stocks Surge: Markets Eye New Year Rally

Benchmark indices on Wall Street concluded the holiday-shortened Christmas week with a positive trend, marking their third consecutive day of gains. This upward momentum was significantly fueled by a strong comeback in AI-related stocks, with Nvidia leading the charge following reports of its plans to ship H200 chips to China by February 2026. Other AI players like Oracle and Micron also experienced increased investor interest.

Analysts are projecting ambitious targets for the S&P 500 in 2026, with some as high as 8,100, raising questions about AI's continued dominance in the market rally heading into the new year. Fund managers are holding record low cash levels, with valuation concerns seemingly overshadowed by optimism for sustained growth. Markets are anticipating at least two Federal Reserve rate cuts in 2026, even though the dot plot suggests only one.

Key macroeconomic data, including the third-quarter GDP print, are expected later this evening, with economists forecasting growth between 3.5% and 3.8%, though a modest slowdown is anticipated for the new year. Amidst these developments, Fed Governor Stephan Miran expressed concerns that a lack of continued monetary easing could push the economy towards a recession, highlighting rising unemployment as a factor necessitating further rate cuts.