US tech stocks surge as Fed rate cut bets fuel rebound

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US tech stocks rose sharply on Monday, as mounting expectations of a Federal Reserve interest rate cut next month encouraged investors to buy the dip after a recent heavy sell-off.

The Nasdaq Composite index rose 2.4 per cent by lunchtime in New York, while the blue-chip S&P 500 index was up 1.4 per cent, with nine in 10 stocks in positive territory.

Chipmaker Broadcom added 9.4 per cent and Alphabet rose 5.2 per cent to a fresh record high after its new image generation model received positive reviews. Elon Musk’s Tesla rose 7.1 per cent.

The gains came as investors moved past the fears over elevated valuations of companies linked to artificial intelligence, which had fuelled a volatile sell-off on Wall Street for much of last week.

The S&P 500 has fallen roughly 3 per cent since its last record high at the end of October as investors have trimmed their positions in some of the volatile tech stocks that had surged earlier this year.

The sell-off “was arguably overdue, with the S&P 500 typically pulling back 3 to 5 per cent on average every two to three months”, said Deutsche Bank analysts in a note to clients.

Traders’ “positioning in tech has dropped, but that in cyclicals, which was already much lower, has dropped even further”, they added.

Investor sentiment was buoyed on Monday after Fed governor Christopher Waller threw his weight behind a December rate cut, citing little evidence of rising inflation and a “soft labour market” that is “continuing to weaken”.

His comments came after New York Fed president John Williams last week signalled support for a quarter-point rate cut when the Fed meets next month.

“The price points of individual stocks and the market are more attractive. Adding to that attraction is that you have . . . signs that the Fed is going to be pumping liquidity back into the system,” said Steve Blitz, chief US economist at TS Lombard.

Traders in futures markets now assign a roughly 65 per cent probability of a December Fed rate cut, up from about 40 per cent before Williams’ comments.

Bitcoin continued its recent slide, down 1 per cent at about $87,500 on Monday to take its loss since a high in early October to 31 per cent.

“The latest crypto convulsions would constitute hyperinflation, if crypto were a currency,” said Paul Donovan, chief economist at UBS Global Wealth Management.

“Annualising bitcoin’s recent spending power collapse is equivalent to roughly 800 per cent inflation,” he added.

Moves in European stocks were more muted, with the Stoxx Europe 600 closing 0.3 per cent higher. Earlier, Asian equities were mixed. Hong Kong’s Hang Seng index surged 2 per cent, while mainland China’s CSI 300 was down 0.1 per cent.