A rally in megacaps spurred a rebound in stocks on speculation the artificial-intelligence boom will keep fueling market gains.

Traders brushed off any jitters surrounding Friday’s U.S. jobs report to reignite the trade that’s driven the Nasdaq 100 up over 45 per cent this year. Optimism around AI resurfaced, with Alphabet Inc. up almost 5.5 per cent a day after Google released Gemini, the “largest and most-capable AI model” it has ever built. Advanced Micro Devices Inc. also rallied after pledging its new accelerator chips will run AI software faster than rival products.

“Artificial intelligence has potential to drive productivity gains sharply higher in 2024 and beyond,” said Yung-Yu Ma at BMO Wealth Management. “Resilience, adaptability and innovation have been hallmarks of the economy in 2023, and we see those factors carrying us through in 2024 as well.”

The Nasdaq 100 rose 1.5 per cent and the S&P 500 halted a three-day drop. Treasuries saw small moves, with the 10-year yield edging higher to around 4.15 per cent. Hawkish signals from the Bank of Japan drove the yen up about 2.5 per cent. The dollar fell.

Krishna Guha at Evercore says he’s not “buying the idea” that the BOJ will seriously consider a surprise hike in December.

“We think January is much more plausible,” he noted. “While it is asserting a serious option to go in January, it is actually leaning more to a later hike in April. So while the direction of travel is right, today’s tactical trades have likely overshot.”

In a week jam-packed with labor-market readings, data showed continuing applications for U.S. jobless benefits fell by the most since July. Despite the decline, continuing claims are still near a two-year high amid growing evidence of a cooling labor market.

“The jobless claims release today wasn’t particularly eventful in itself,” said Craig Erlam at Oanda. “The jobs report tomorrow is really significant, particularly the wages component.”

Optimism about disinflation and potential rate cuts next year played a big part in the recent stock rally. Yet a reading of cross-asset volatility shows risks aren’t as muted as they may appear. The gap between the MOVE Index, which tracks interest-rate volatility, and the VIX gauge of stock price swings has once again widened — suggesting rate markets remain choppy and could spark stress for equities at any time.

Marko Kolanovic at JPMorgan Chase & Co. warned clients that equities and other risk assets won’t be able to sustain any potential rallies without substantial rate cuts by central banks — and he doesn’t anticipate that unless markets drop severely or the economy stalls. For that reason, he said investors should opt for cash or bonds over stocks.

“This is a catch-22 situation,” Kolanovic said. “This would imply that we would need to first see some market declines and volatility during 2024 before easing of monetary conditions and a more sustainable rally.”

U.S. stocks are already reflecting an optimistic outlook on economic growth, leaving them “vulnerable” to any macro shocks, according to Goldman Sachs Group Inc. strategists including Ryan Hammond and David Kostin.

“We believe much of the optimistic scenario is already reflected in U.S. equity prices today,” they wrote.

Meantime, Bank of America Corp.’s quant strategists say that after the big tech-fueled rally in 2023, the S&P 500 has the potential to rise next year — even without their support. Concerns about narrow market breadth are “misplaced” as bull markets in the past four decades — outside of the dotcom bubble — have always ended with far better breadth, they noted.

“Unlike this year during which the ‘Magnificent 7’ did 70 per cent of the work, we expect broader leadership,” said Savita Subramanian, referring to contributions from the likes of Apple, Nvidia and Microsoft to the rally.

Corporate Highlights:

• Tesla Inc.’s Dojo supercomputer project lead Ganesh Venkataramanan has left the company, according to people familiar with the matter, a setback to the automaker’s self-driving technology efforts.
• Dish Network Corp. surged after the U.S. Federal Communications Commission approved its merger with EchoStar Corp.
• JetBlue Airways Corp. boosted its full-year financial outlook, citing better-than-expected bookings and operational performance this fall.
• Dollar General Corp. reported comparable sales that were better than the average analyst estimate, a sign that Chief Executive Officer Todd Vasos is having some early success in improving results after taking the helm for a second time in October.
• GameStop Corp., the video-game retailer, reported sales that fell short of analysts estimates.
• Elon Musk’s SpaceX has initiated discussions about selling insider shares at a price that values the closely held company at US$175 billion or more, according to people familiar with the matter.
• ChargePoint Holdings Inc.’s steep revenue drop, triggered in part by the U.S. auto strike, took a back seat to the electric car charging network company’s long-term potential as investors pushed share prices to a three-week high.

Key events this week:

• Germany CPI, Friday
• Japan household spending, GDP, Friday
• Reserve Bank of Australia’s head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday
• U.S. jobs report, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.8 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.5 per cent
• The Dow Jones Industrial Average rose 0.2 per cent
• The MSCI World index rose 0.5 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.4 per cent
• The euro rose 0.3 per cent to $1.0795
• The British pound rose 0.2 per cent to $1.2589
• The Japanese yen rose 2.4 per cent to 143.73 per dollar

Cryptocurrencies

• Bitcoin fell 1.3 per cent to $43,260.85
• Ether rose 4.3 per cent to $2,344.03

Bonds

• The yield on 10-year Treasuries advanced four basis points to 4.14 per cent
• Germany’s 10-year yield declined one basis point to 2.19 per cent
• Britain’s 10-year yield advanced two basis points to 3.97 per cent

Commodities

• West Texas Intermediate crude rose 0.4 per cent to $69.67 a barrel
• Spot gold rose 0.2 per cent to $2,029.26 an ounce