Stocks rise on AI optimism; lower oil helps bonds

The Nasdaq Composite hit a record closing high on Monday, propelled by strong performances in Advanced Micro Devices and other AI-focused companies. Meanwhile, the S&P 500 and Dow Jones Industrial Average also gained, with the latter ending the day just shy of a record.

This surge in stocks was fueled by a combination of factors, including lower oil prices and positive movements in long-dated Treasury yields. The increased appetite for risk was evident in the rise of interest-rate-sensitive two-year US Treasury yields, which climbed to the highest level since July 2024.

Chip stocks, in particular, led the rally, with Intel and Arm Holdings surging over 12 percent each. The PHLX semiconductor index also experienced a notable gain of 4.3 percent. Moreover, Advanced Micro Devices reached a market capitalization of $1 trillion for the first time, closing 10 percent higher.

Investors remained optimistic about the AI sector despite recent safety warnings from leaders of major AI companies. These warnings triggered a global tech selloff a week earlier. However, signs of expanding spending on AI have persisted, providing a solid foundation for continued optimism in the sector.

Overall, the market appeared resilient and poised for further growth, with central banks raising rates to combat inflation rather than to curb economic activity. This approach is expected to be gradual and limited, suggesting that higher rates will not significantly harm earnings or disrupt the broader bull market.