As the tech juggernaut rolls on, the Nasdaq Composite registered its ninth-record close this year on May 20. The tech-laden index climbed 0.7% to close at 16,794.87, powered by gains in NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) and other tech bigwigs. The index has soared more than 11% year to date, way more than the 30-stock Dow Jones Industrial Average’s gain of 5.6%.

The Nasdaq, in reality, has jumped from “extreme” oversold territory to “extreme” overbought territory for the second time in six months, thanks to its latest accent to record highs, per Bespoke Investment Group. However, this doesn’t mean that the index is subjected to an imminent downward trend. The recent rate cut optimism is driving the index higher and will continue to do so in the near future.

The Federal Reserve has indicated that the central bank won’t be raising interest rates in the upcoming policy meetings this year, and they agreed that concerns about stagflation are implausible. The CME FedWatch tool currently shows that market participants believe that there is almost a 50% chance that the Fed will trim interest rates by a quarter-point in the September meeting.

So, what’s behind the rate cut expectations? Consumer prices eased last month after rapid price increases in the first quarter, raising hopes that the Fed will become more dovish. The core Consumer Price Index increased by 3.6% in April, down from 3.8% in March. The index that excludes the volatile energy and food prices also registered its lowest annual increase since early 2021.

Recent consumer spending patterns are also offering some relief for the Fed. Sales at U.S. retailers remained flat in April, in contrast to economists’ expectation of growth, a tell-tale sign that consumer spending is cooling. Fewer job additions and a decline in wage growth to its lowest level in April in three years did little to pump up consumers’ spending propensity. This means that the Fed would be less inclined toward an aggressive monetary policy.

A lower interest rate environment is a boon for tech stocks as their future cash inflows aren’t affected. Interest rate cuts lead to a decrease in the cost of borrowing, which in turn lift profit margins.

Thus, it’s prudent for astute investors to place bets on the hottest Silicon Valley tech stocks such as NVIDIA, Alphabet Inc. (GOOGL Quick QuoteGOOGL - Free Report) , and Seagate Technology Holdings plc (STX Quick QuoteSTX - Free Report) that are poised to make the most of the Nasdaq’s upward movement banking on rate cut hopefulness. They have a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Our Picks

NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. NVIDIA currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 2.2% over the past 60 days. NVDA’s expected earnings growth rate for the current year is 87.1% (read more: NVIDIA a Solid Buy as it Squashes Bubble Fears).

Alphabet is one of the most innovative companies in the modern technological age. It offers various products and platforms across the globe. Alphabet presently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 12.4% over the past 60 days. GOOGL’s expected earnings growth rate for the current year is 31.2% (read more: Bill Ackman’s Favorite "Magnificent 7" Stock is a Big Winner).

Ireland-based Seagate Technology has its operational headquarters in Fremont, CA. Seagate Technology currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 73.6% over the past 60 days. STX’s expected earnings growth rate for the current year is 384.2%.