Wall Street stocks closed higher Monday, extending Friday's rally as increased odds that the U.S. Federal Reserve will lower its Fed funds target rate in December helped investors look past concerns about inflated tech valuations.

U.S. indexes embarked on the holiday-shortened week with solid gains, with strength in the "Magnificent Seven" group of artificial-intelligence-related momentum stocks putting the tech-heavy Nasdaq out front.

A spate of economic reports, belatedly released after the recent six-week government shutdown, hinted at labor market weakness and stubbornly elevated inflation, which has bolstered investor optimism that the Fed will implement its third and final interest rate cut of 2025 at the conclusion of its December monetary meeting.

'SIGH OF RELIEF'

Dovish commentary from Fed Governor Christopher Waller, New York Fed President John Williams, and San Francisco Fed President Mary Daly lent some support to that optimism, although other policymakers voiced dissenting opinions.

"The street is falling into the line of thinking that a rate cut is coming in December," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. Financial markets are pricing in an 85% likelihood of that occurring, up from 42.4% a week ago, according to CME's FedWatch tool.

The release of economic data is set to continue this week, with retail sales, producer prices, and new orders for durable goods joining independent indicators such as Case-Shiller home prices, the Conference Board's consumer confidence report and the National Association of Realtors' pending home sales data.

Third-quarter reporting season is drawing to a close. As of Friday, nearly 95% of the companies in the S&P 500 have reported, 83% of which delivered better than expected earnings. Analysts now expect third-quarter aggregate earnings growth of 14.7% for constituents of the bellwether index, a significant improvement over the 8.8% estimate on October 1, according to LSEG data.

According to preliminary data, the S&P 500 gained 101.11 points, or 1.53%, to end at 6,705.69 points, while the Nasdaq Composite gained 597.01 points, or 2.68%, to 22,870.09. The Dow Jones Industrial Average rose 195.44 points, or 0.42%, to 46,440.85.

HOLIDAY SHOPPING

The U.S. holiday shopping season kicks off this week, starting with Thursday's Thanksgiving holiday.

The health of the consumer, who shoulders about 70% of the U.S. economy, will be assessed for any signs of weakness amid increased layoff announcements and weak survey reports. Even so, the National Retail Federation expects holiday sales to top $1 trillion for the first time.

Earnings from consumer-oriented companies such as Best Buy are expected later this week.

TECH VALUATION WORRIES

AI bellwether Nvidia's strong forecast last week failed to assuage looming fears of a potential AI bubble.

The S&P 500 and Nasdaq remain on track for monthly losses.

Deutsche Bank helped revive investor risk appetite after projecting the S&P 500 would reach 8,000 by the end of next year, the most bullish forecast among major global brokerages. Bristol Myers gained after European rival Bayer unveiled positive late-stage data for its cardiovascular drug, boosting confidence in Bristol Myers' experimental drug milvexian.

Centene and Oscar Health jumped following a report that Trump is considering extending the Affordable Care Act's subsidies for two years.