Stocks close at record highs for second day as AI trade heats up ahead of Fed rate decision

Stocks hit fresh records on Tuesday as investors stepped further into the artificial intelligence trade a day before the Federal Reserve is set to announce its interest rate decision.

The S&P 500 rose 0.23% to close at 6,890.89. It had surpassed the 6,900 level for the first time on an intraday basis earlier in the day. The Nasdaq Composite advanced 0.80% to finish at 23,827.49, while the Dow Jones Industrial Average gained 161.78 points, or 0.34%, to settle at 47,706.37. In addition to their closing highs, the tech-heavy Nasdaq and 30-stock Dow scored new all-time intraday highs alongside the broad market S&P 500.

The market’s gains were led by Nvidia, which climbed about 5% and had notched a new high. The AI chip darling made a series of announcements Tuesday at its GTC conference, including its partnership with Finnish company Nokia. Nvidia will take a $1 billion stake in Nokia, which said it will use the proceeds to fund in part its AI plans. Other AI-related names like Broadcom saw a boost as well.

Microsoft was around 2% higher heading into its earnings results after the bell on Wednesday. The stock, along with Apple, crossed $4 trillion in value during Tuesday’s session. On Tuesday, OpenAI announced it has completed its recapitalization, a move that sets up Microsoft for a windfall with it holding roughly 27% of the for-profit arm OpenAI Group PBC.

Along with Microsoft and Apple, a number of “Magnificent Seven” names are due to report this week, such as Alphabet, Amazon and Meta Platforms, and those five names together account for roughly one quarter of the S&P 500’s total value. So far, the earnings season is off to a “fantastic” start, Mike Dickson of Horizon Investments told CNBC. About one-third of S&P 500 companies have reported, 83% of which have beaten earnings expectations, according to FactSet data.

“Obviously, valuations have been fairly elevated by historical standards, and we’ve probably gotten about all the help we’re going to get out of the Fed without something bad [going] wrong,” the firm’s head of research and quantitative strategies said. “This has got to be led by the earnings side of things, and quite frankly, to start, we have absolutely seen that,” he continued, noting that “we got to see what these behemoths have to say.”

The Fed is expected to cut its benchmark rate for a second time in 2025 on Wednesday. Investors are also hoping for a signal from Fed Chair Jerome Powell that the central bank will cut once more at its final meeting of the year in December.

Investors during Monday’s session cheered cooling tensions between the U.S. and China ahead of a highly anticipated meeting between President Donald Trump and Chinese President Xi Jinping on Thursday. Trump said Monday that both nations were expected to “come away with” a trade deal, which could address China rare earth minerals restrictions, soybean purchases and TikTok. The Wall Street Journal reported Tuesday that tariffs on goods from China would be lowered if Beijing clamps down on the export of chemicals which produce fentanyl.

“The market is expecting something conclusive as a result of this meeting,” Dickson said. “If we don’t get an agreement of some type that can splash the headlines, I think that’ll be a disappointment. That doesn’t necessarily mean that the whole thing is solved. It just means there is definitive progress that something has been agreed to.”

The S&P 500 in the previous session recorded its first-ever close above the 6,800 level, while the Nasdaq and the Dow closed at record highs. The Russell 2000 small-cap benchmark likewise finished at a new all-time high.