US stocks gained on Thursday, as investors continued to celebrate a dovish shift by the Federal Reserve that helped propel the Dow to a new all-time closing high.
The Dow Jones Industrial Average (^DJI) added about 0.3%, setting the blue-chip index up to build on its record close above 37,000 on Wednesday. The S&P 500 (^GSPC) was up almost 0.6%, while contracts on the tech-heavy Nasdaq Composite (^IXIC) added 0.4%.
The gauges posted fresh 2023 highs in the wake of the Fed’s policy decisionwhich signaled the Fed is unlikely to hike interest rates further and that it could cut rates three times next year.
That message surprised and thrilled investorswho welcomed the Fed’s forecast of further cooling in inflation and no sharp rise in unemployment. Bonds rallied alongside stocks, sending the yield on the 10-year Treasury (^TNX) down below 4% on Thursday, for the first time since August.
Meanwhile, oil prices moved up about 1.7% to come further off the five-month low hit earlier this week. West Texas Intermediate (CL=F) futures traded at nearly $71 a barrel, while Brent crude futures (BZ=F) rose toward $76 a barrel.
Eyes are also on central bank decisions elsewhere on Thursday, for signs of a worldwide move to easing. The Bank of England kept its interest rates steady, as did the Swiss National Bank and the European Central Bank, though Norway’s policymakers raised the benchmark rate in a surprise move.
In individual corporates, Adobe (ADBE) shares sank more than 6% in after the software maker’s sales outlook signaled it will have to wait longer than expected for a boost from new AI tools. Adobe also said US antitrust regulators are looking into its cancellation rules for subscriptions.
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Big gains for small caps. Again.
Stocks are rallying across the board on Thursday, but the biggest moves continue to come from small caps.
The Russell 2000 (^RUT) was up as much as 2.2% early Thursday after a 3% move higher on Wednesday.
A big part of this rally is due to what we’ve seen in financials, with banks rallying as lower rates could ease some of the balance sheet pressures that eventually tipped Silicon Valley Bank into bankruptcy earlier this year.
About 16% of the Russell 2000 is made up of financial stocks and tech, the biggest sector weighting in the index, caps out at about 18%.
For the S&P 500, financials are about 12% of the market cap and that group includes non-banks like Berkshire Hathaway. Moreover, tech stocks have about a 30% weighting in the S&P 500.
In other words, when banks are rallying, the Russell is likely to be in rally mode as well, a story playing out in spades in today’s market.
The ‘lid’ is off stocks, and laggards are soaring
The Federal Reserve told investors it now sees more interest rates cuts than previously expected as the US economy has the vaunted soft landing in sight.
And now, a full on stock market rally has ensued with the Dow Jones Industrial Average ( soaring to a new record high and the S&P 500 (^GSPC) closing in on its own previous top.
To CFRA’s Chief Investment Strategist Sam Stovall, Powells comments “took the lid off the markets concerns,” and now the market “has further to run,” he told Yahoo Finance Live.
As Stovall points out a quick look at the market action on Thursday paints a clear picture for what’s benefiting the most from the Fed pivot.
Real Estate (XLRE), one of the worst performing sectors of the last year, is up nearly 2.5% on Thursday. Big banks are soaring too with Goldman Sachs (GS) touching a 52-week high at the open while Bank of America (BAC) is also up more than 4%.
“Not surprisingly Financials and Real Estate have been on the top because those are the ones that had been pressured the most because. of the higher rates,” Stovall said.
Economic data shows consumer remains strong
Economic data on Thursday showed the amount of layoffs in the US isn’t taking a material step higher while consumers continue to spend money.
Retail sales grew 0.3% in November, according to Census Bureau data. Economists had expected a 0.1% decline.
“The upside surprise in November retail sales is indicative of the continued staying power on the part of consumers,” Wells Fargo Economics senior economist Tim Quinlan wrote in a research note on Thursday.
And that staying power comes as the labor market overall remains tight, with unemployment at a historically low level.
New data Thursday showed weekly jobless claims came in lower than expected. In the week ending December 9, 202,000 jobless claims were filed, below economists expectations for 220,000, which would’ve been roughly in line with the week prior.
“Still-low initial jobless claims suggest substantial and widespread layoffs are still not occurring,” Citi’s team of economists wrote in a research note on Thursday.
Stocks press higher at the open
The Federal Reserve-driven stock market rally continued on Thursday as investors positioned themselves for the Fed’s latest projection that interest rates will fall more than previously expected.
The Dow Jones Industrial Average (^DJI) added about 0.3%, setting the blue-chip index up to build on its record close above 37,000 on Wednesday. The S&P 500 (^GSPC) was up almost 0.6%, while contracts on the tech-heavy Nasdaq Composite (^IXIC) added 0.4%.
Interest rate-sensitive Real Estate led the sectors surging more than 2%, while the Nasdaq 100 paced gains on track for a record close.
Why investors are so jubilant right now
Investors are celebrating after the Federal Reserve’s policy message turned out more dovish than many expected — and that has put fresh record highs for stocks in sight.
While the central bank’s decision to keep interest rates unchanged was no surprise, the signal that three rate cuts are in the cards next year was unexpected.
What’s also thrilling investors is that the Fed expects a “soft landing” for the US economy — given central banks usually ease up on policy in response to a downturn, notes Yahoo Finance’s Myles Udland.
The Fed’s forecasts paint a picture of cooling inflation, muted unemployment, and a moderation in economic growth. Read here for more on what that means for the market.
