There was a general rise in the Dow, S&P 500 and Nasdaq Composite indexes following hints that the Fed policy would favor the general market.
The Dow Jones Industrial Average (DIJA) ended Thursday higher even as the 10-year Treasury fell below 4%. The Dow’s rise corresponds with an increase in retail sales, providing an optimistic outlook on the economy as the year comes to an end.
The 10-year Treasury note fell below 4%, a level not seen since August, losing 11 basis points to crest at 3.922%. The fall in Treasury levels came as investors sought to interpret the Federal Reserve’s guidance about its policy on interest rates.
The 30-stock Dow climbed 158 points on the day, closing at 37,248.35 after rising 0.43%. On the previous day, the index had hit a record as it closed above 37,000 for the first time ever. The movements seem to suggest general market optimism about the Fed’s policy and the likelihood of rate cuts in 2024.
In addition to a rise in the 30-stock Dow, the S&P 500 already increased by 0.3% to 4,719.55. Similarly, there was a 0.2% rise in the Nasdaq Composite, rising 0.2% to 14,761.55.
Rise in Dow Reflects Market Bullishness
Forecasts are generally bullish, with general optimism that the financial markets are set to improve. Canada-based global financial services giant RBC Capital believes bank stocks may perform better than US stocks in 2024. In a report published on Thursday, RBC said the next 12-18 months will be a period of maintained or increased dividends. The bank also added:
“In the second half of 2024, we see continued improvement in the fundamentals as the Federal Reserve gradually lowers the Federal Funds rate, loan growth starts to accelerate, loan loss provisions begin to fall and capital return through share repurchases begins to accelerate.”
The rally in banking stocks may have already started as the SPDR S&P Regional Banking ETF climbed 19% in December and 9.4% this week alone. Interestingly, there have been larger gains in individual banking stocks, with Western Alliance Bancorp climbing 29% in December and 17% this week. There is also Columbia Banking System rising 24% and 11%, as well as Citizens Financial, with 24% and 14%.
Away from banking, some of the largest jumps were in automaker Rivian Automotive (NASDAQ: RIVN) and sneaker retailer Foot Locker (NYSE: FL). While Foot Locker rose 9%, Rivian jumped 11.2%.
Unfortunately, big tech stocks tell a different story. Meta Platforms (NASDAQ: META), AlphabetInc (NASDAQ: GOOGL), and Amazon.com Inc (NASDAQ: AMZN) all closed lower, falling 0.47%, 0.57%, and 0.95%, respectively. Also, there were larger reductions in Netflix Inc (NASDAQ: NFLX) and Microsoft Corp (NASDAQ: MSFT), both closing 2.11% and 2.25%, respectively.
Despite the market optimism, a former Dallas Federal Reserve President Robert Kaplan has warned against excitement. Speaking in a CNBC interview, Kaplan touched on Fed Chair Jerome Powell’s comment about restricting tightening since inflation is reducing. Suggesting that all is still not yet clear, Kaplan said:
“People should not overreact to what he said. He left his options open. He thinks they’re done, it’s likely the next move will be down, but he’s keeping his options open.”
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