Wall Street Rides the AI Wave as the Fed Looms

CNBC, AP, Reuters, and Bloomberg contributed to this report.

Wall Street notched another set of fresh records Tuesday, with investors piling back into the artificial-intelligence trade on the eve of a Federal Reserve rate call. The S&P 500 added 0.23% to 6,890.89 after briefly cracking 6,900 for the first time intraday. The Nasdaq Composite jumped 0.80% to 23,827.49. The Dow rose 161.78 points, or 0.34%, to 47,706.37. All three logged new intraday peaks alongside those closing highs, keeping the tape in full-on blue-sky territory.

Nvidia did most of the heavy lifting, climbing about 5% after a blitz of announcements at its GTC showcase. The chipmaker unveiled a partnership with Nokia and will take a $1 billion equity stake in the Finnish firm, which said the proceeds help fund its own AI ambitions. The move sent AI-adjacent names higher and added yet another jolt to a trade that’s dominated 2025. Microsoft rode the same current, up around 2% into its results due Wednesday, while Apple and Microsoft both briefly crossed the $4 trillion market-cap line during the session. Microsoft also stands to benefit from OpenAI’s completed recapitalization, which leaves the software giant with roughly 27% of the for-profit OpenAI Group PBC and a potentially hefty paper windfall.

The market’s setup is classic “show me earnings.” About a third of S&P 500 companies have reported so far, and roughly 83% have topped profit estimates, according to FactSet. That positive skew has been strong enough to justify rich valuations — at least for now — but traders want to hear from the heaviest hitters. Alphabet, Amazon, Meta, Microsoft and Apple all report this week, and together those five names make up roughly a quarter of the S&P 500’s total value. As one strategist put it on CNBC, the Fed can’t carry this rally any further; if stocks keep grinding higher, it has to be on the back of profits.

The Fed, for its part, is expected to deliver a second rate cut of the year on Wednesday — another 25 basis points that would nudge the funds rate deeper into the 4.00%–4.25% target range. The statement and Chair Jerome Powell’s tone matter more than the cut itself. Markets are leaning toward one more trim at the December meeting, so any hint of a “one-and-done” stance could jolt both stocks and bonds. Yields were steady into the event, with the 10-year Treasury around 3.97% after slipping from 4.01% on Monday.

Geopolitics added a tailwind. Investors cheered signs of a thaw before Thursday’s planned meeting between President Donald Trump and China’s Xi Jinping. Hopes for a trade framework — potentially involving lower US tariffs if Beijing clamps down on fentanyl precursor exports — helped sentiment and eased some edge in cyclicals. Trump also suggested both sides could “come away with” a deal addressing rare-earths, soy purchases and TikTok, even if details remain fluid.

Beneath the Big Tech fireworks, there were pockets of notable stock-specific action. UPS rallied after a clean beat on revenue and adjusted EPS and outlined progress on its cost-cutting overhaul. PayPal rose on better-than-expected profit and a new quarterly dividend, plus a deal to embed its wallet in ChatGPT. On the flipside, Royal Caribbean sank despite topping EPS, as revenue and guidance underwhelmed and weather disruptions nipped bookings. The small-cap Russell 2000 lagged, slipping after its own record close on Monday, a reminder that the AI-led surge hasn’t lifted every boat equally.

If there’s a worry hiding in plain sight, it’s concentration risk. A “Magnificent Seven” gauge continues to outrun the broader market, and positioning in the Nasdaq 100 has swung back toward crowded. That cuts both ways. As long as AI capex plans keep rolling and megacaps keep clearing a high earnings bar, momentum feeds on itself. But with expectations stretched, even a small miss — or softer guidance on AI spending cadence — could spark a sharp wobble. Analysts have already flagged the gap between tech stock prices and profit growth as historically wide, a dynamic that can persist but raises the chances of disappointment.

Commodities and currencies were sideshows. Oil eased, and gold, after a blockbuster run this year, stayed below $4,000 an ounce as haven demand cooled. The dollar dipped slightly. None of it dented the equity mood, which was buoyant from the opening bell as the S&P 500 immediately notched new highs and the Nasdaq kept pushing.

So the setup into Wednesday is clean and tense at the same time. Earnings season has been “fantastic,” to borrow one strategist’s word, but now comes the main course with megacap results stacked around a Fed day that could cement or complicate the soft-landing script. AI remains the market’s organizing principle. If Nvidia’s GTC drumbeat, Microsoft’s OpenAI tie-up, and Apple’s trillion-class aura are any guide, investors still believe the spending supercycle will translate into durable cash flows. If the Fed confirms an easing path and Powell avoids any hawkish tripwires, the runway to that long-chased 7,000 print on the S&P 500 might stay clear a little longer.

For now, the scoreboard says enough: the S&P 500 at 6,890.89, the Nasdaq at 23,827.49, and the Dow at 47,706.37 — all records, again — on a day when AI did what AI’s done all year: keep the bull market’s engine humming.