The Nasdaq Composite Index, which comprises marquee names in technology such as Amazon, Apple, Netflix and Google, closed the day up 93 points, or 0.9%, at 10,953, adding to Friday’s 2.3% gain.
The S&P 500 Index, which represents the top 500 US stocks, finished up 45 points, or 1.2%, at 3,797. The S&P rose 2.4% on Friday.
The outlier of the day was, however, the Dow Jones Industrial Average, which serves as Wall Street’s broadest equities indicator with stocks of 30 large US corporations. Known as the "Dow", the index surged 417 points, or 1.3%, to 31,500.
Also for last week, the Dow, S&P500 and Nasdaq gained 5% each for their best weekly performance since the week ended June 17.
Friday’s rally was based on speculation that the Federal Reserve would slow or stop interest rate hikes altogether by next year, despite the US central bank not giving any indication it will not back off until it had the runaway US inflation under control.
Monday’s gains came as S&P Global said its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 47.3 this month from a final reading of 49.5 in September.
That weakening could indicate that the Fed's interest rate increases to fight inflation have been working and may persuade it to slow its interest rate hike policies - a positive signal for fuel demand, Phil Flynn, an analyst at the Price Futures group in Chicago, said.
"No one wants to aggressively buy big tech stocks until we hear this week's big earnings from Apple, Alphabet, and Amazon," Ed Moya, analyst at online trading platform OANDA, said. "Investors are getting more confident that inflation will soften as the consumer rethinks massive purchases. Fed rate hike expectations will remain volatile, but expectations are growing that a weaker economy will let the Fed pause their tightening after the February policy meeting."
Inflation, as measured by the Consumer Price Index, stood at 8.2% for the year to September, not too far from the 40-year peak of 9.1% during the 12 months to June.
The Fed’s target for inflation is a 2% per year and it has said it will not back off on interest rate hikes until it reaches the target. Since March, the central bank has raised rates by 300 basis points from an original base of 25. The Fed intends to add another 125 basis points to rates before the year-end.
Economists have accused the Fed of being slow to the inflation-fight and say its move to overcompensate for its earlier inaction with aggressive rate hikes will trigger a recession. Most of the central bank’s senior officials refute that assertion.
The US economy could land in 1990-style recession by spring next year as unyielding inflation and the Fed’s jumbo-sized interest rate hikes come to a head, Fitch Ratings said in a report last week.