Michael M. Santiago
U.S. stocks on Tuesday kicked off the final week of the year with marginal gains, as Wall Street looks to cap its astonishing rally and end 2023 on a high note. Trading is expected to be thin with many on holiday.
The tech-heavy Nasdaq Composite (COMP.IND) led the three major averages, rising 0.54% to end at 15,074.57 points. The blue-chip Dow (DJI) climbed 0.43% to settle at 37,545.33 points, while the S&P 500 (SP500) added 0.42% to close at 4,774.77 points. The benchmark index is within striking distance of its record closing high of 4,796.56 points.
All 11 S&P sectors ended in the green. Energy was the top gainer, as WTI crude oil futures (CL1:COM) jumped more than 2% amid continued tensions in the Red Sea.
Treasury yields were mixed. The longer-end 30-year (US30Y) and 10-year yields (US10Y) were both down 1 basis point each to 4.40% and 3.89%, respectively. The shorter-end more rate-sensitive 2-year yield (US2Y) was up 2 basis points to 4.36%.
See how Treasury yields have done across the curve at the Seeking Alpha bond page.
“Stocks and bonds edged higher, the dollar index was a touch lower, while oil and gold prices rose. With only a few days left until 2024, expect liquidity to dry up as many market participants are on vacation,” Andrew Hecht, investing group leader of Hecht Commodity Report, told Seeking Alpha.
“Low liquidity can lead to sudden price volatility, so be careful in markets this week! I wish everyone a happy, healthy, and safe New Year holiday and a profitable 2024!” Hecht added.
Equities are coming off eight straight week of gains, as sentiment continued to remain positive on favorable economic data which bolstered soft landing hopes. Markets are pricing in a nearly 72% chance that the Federal Reserve will deliver a 25 basis point rate cut at its monetary policy committee meeting in March 2024, following the central bank’s long-awaited dovish pivot earlier this month.
“Outlook for 2024: I expect a broadening bull market as the Fed pivots (at least initially) and the bond market finds a new range, while earnings advance and the economy survives the great hiking cycle of 2022-23,” Fidelity’s Jurrien Timmer said on X (formerly Twitter) on Friday.
“Two caveats: 1. The Fed might pivot prematurely, forcing it to repent its dovish narrative sometime in the second half. Giving back a few rate hikes makes sense — the market loves the idea, obviously— but for me, a hawkish pivot seems like a bigger risk than a hard landing,” Timmer said.
“(Second), at a forward P/E ratio of 20.8x, most of the soft-landing narrative may already be priced in. The forward P/E ratio has gained 5.5 points since its low of 15.3x in October 2022 in anticipation of an earnings recovery. That recovery is happening, but how much of it might be offset by multiple compression remains to be seen,” Timmer added.
On Tuesday, market participants received some economic data. Before the opening bell, the Chicago Fed’s gauge of economic activity suggested growth in November, compared to a contraction in October.
Shortly after the start of regular trading, housing market indicators arrived in the form of the S&P CoreLogic Case-Shiller home price index and the FHFA house price index. Both indexes rose on a M/M basis.
Finally, Dallas Fed’s reading of manufacturing activity improved in December, though still in negative territory.
Turning to active movers, Intel (INTC) ended as the top percentage gainer on all three major averages. Reuters reported that the Israeli government agreed to give the chip giant a $3.2B grant for a new $25B chip facility it intends to set up in the the southern part of the country.