Nasdaq Hits Record High on AI Optimism as Markets Await Trump-Xi Summit

The Nasdaq 100 surged 2.8% on Monday to a record close, marking its best session since early August, as investors focused on the earnings potential of artificial intelligence over the Federal Reserve's latest interest rate increase. A sharp drop in oil prices and Treasury yields provided further tailwinds for technology stocks.

AI and Macro Tailwinds Drive Rally

The rally highlighted a growing conviction that AI infrastructure spending is translating into significant revenue. Shares of Meta (META) soared nearly 12% on Monday, reportedly boosted by the success of its AI agent application, Muse. The gains underscore how companies seen as leaders in the AI space are being repriced by the market.

Favorable macroeconomic shifts also supported the tech-heavy index. U.S. crude oil prices fell 4.5%, while Brent crude dropped 3.4%. The decline in energy prices helped pull the 10-year Treasury yield down by four basis points to 4.95%, easing inflation concerns and lowering the discount rate used to value the future cash flows of growth stocks.

Central Bank Policy in Context

The market's advance came despite the Federal Reserve raising its benchmark interest rate by 25 basis points last week to a target range of 3.75%-4.00%. According to Fed projections, the policy rate is expected to peak at 4.00%-4.25% by the end of the year and hold steady through 2027.

This projected terminal rate is significantly below the 5.5% ceiling reached in the previous tightening cycle, a crucial factor for long-duration equities that are highly sensitive to the peak level of interest rates. Other global central banks, including the Bank of Japan and the European Central Bank, are also raising rates, but at a more calibrated pace than the emergency hikes seen in previous years.

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Focus Shifts to High-Stakes Trade Summit

With the Fed's decision in the rearview mirror, market focus is shifting to the week's main event: a summit between President Trump and President Xi scheduled for Thursday at the White House. The most critical issue on the agenda is the U.S.-China tariff truce, which is set to expire on November 10.

Analysts see the outcome as a major potential catalyst for markets. According to a note from Yardeni Research, the meeting is "arguably the most consequential encounter of either man’s presidency."

• An extension of the truce would remove the single largest binary risk for U.S. multinational corporations and could fuel a year-end equity rally.
• A failure to extend the truce risks reigniting tariff escalations that would heavily impact global supply chains, particularly for the semiconductor industry.

While analysts at Yardeni believe a "grand bargain" is unlikely, they stated that "even a modest stabilization of ties and an extension of an increasingly fragile commercial ceasefire would qualify as a victory for global markets."