Dow Jones gains for the third-day; S&P 500, Nasdaq powered by AI trade comeback

Benchmark indices on Wall Street began the holiday-shortened Christmas week on a positive note, extending their gains for the third straight session, powered by the AI-trade comeback.

The Dow Jones gained over 200 points, while the S&P 500 and Nasdaq gained over 0.5% each. With this three-day move, the Dow Jones is now just over 500 points away from its record highs hit earlier this month, the S&P 500 is 40 points away, while the Nasdaq, which was a major drag two weeks ago, is still 800 points away from its most-recent peak.

The AI trade was led by Nvidia, who gained on reports of the company planning to begin shipping its H200 chips to China by February 2026. Shares of Oracle, Micron, also witnessed buying interest.

With analysts projecting targets of as high as 8,100 on the S&P 500 for 2026, the question on the street is whether AI will continue to lead the rally going into the new year as well. Analysts believe that while the index is likely to continue to move higher, it will come with bouts of volatility.

Based on the current market positioning, fund managers are currently sitting on record low levels of cash, valuation concerns are being outweighed by hopes of the rally to continue, markets are pricing in at least two rate cuts by the Fed in 2026 even if the dot plot indicates only one, and the S&P 500 earnings are likely to grow by 14% in the new year.

The last of the important macro data points for the year will be released later this evening with the third quarter GDP print. Economists expect the GDP growth to be between 3.5% to 3.8%, although they expect a modest slowdown going into the new year.

Fed Governor Stephan Miran, whose term ends in January 2026, told Bloomberg TV in an interview that the Fed risks pushing the economy into a recession if the monetary easing does not continue in the new year. He said that while he does not see a near-term downturn, the rising unemployment should push the Fed towards further rate cuts.

The US Dollar index fell back towards the mark of 98, taking Gold and Silver prices to record high levels. Silver futures are now near the mark of $70 an ounce, taking their 2025 jump to 140%. Gold futures too are near the mark of $4,500 an ounce. Oil prices continue to rebound from 2021-lows amidst tensions between the US and Venezuela and Ukraine attacking a Russian crude vessel in the Mediterranean Sea, sparking supply fears.