U.S. stocks struggle to resume climb as Dow edges higher after notching 5th straight record close

What’s driving markets

U.S. stocks were edging higher on Wednesday with the S&P 500 less than 1% shy of the all-time closing high of 4796.56 it recorded at the start of January 2022, while the Dow industrials and Nasdaq were struggling to extend their nine consecutive daily gains.

The Wall Street large-cap benchmark S&P 500 has jumped 24.3% this year, partially powered by hopes that the U.S. economy has not been too badly damaged by the Federal Reserve’s ratcheting up of interest rates to cool inflation.

The latest leg of the rally reflects hopes that with inflation back down to 3.1%, the central bank will begin quickly trimming borrowing costs next year. Not even an concerted effort by Fed officials to counter the market’s rate-cut optimism has damped trader’s ardor.

This dismissal of less-dovish Fedspeak has left some observers bemused.

“Investors are dreaming of aggressive rate cuts in an environment of strong economic growth, and that is not the right recipe for easing inflation and keeping it sufficiently low,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “The robust economic data and high earnings expectations are not compatible with a dovish Fed,” she said.

See: Why the 60-40 portfolio is poised to make a comeback in 2024

Perhaps the current bullishness is also reflective of seasonal trends, with optimism about a festive bounce underpinning stocks. The “Santa Claus Rally” period stretches from the last five trading days of the year and first two trading days of the new year, according to the Stock Trader’s Almanac.

Since 1950, the S&P 500 has averaged a gain of 1.32% and closed higher 78.1% of the time over that period, according to Dow Jones Market Data.

In U.S. economic data, existing-home sales rose 0.8% in November to 3.82 million, the National Association of Realtors said on Wednesday. Sales of previously owned homes unexpectedly inched up last month, snapping a five-month slump as easing mortgage rates encouraged some U.S. homebuyers.

Meanwhile, U.S. consumer confidence index rose to 110 in December, up from a downwardly revised 101 in the previous month, the Conference Board said Wednesday.

“The consumer is feeling pretty well as rates move lower, employers add to their payroll, and income expectations improve,” said Jeffrey J. Roach, chief economist at LPL Financial. “So far, investors have a green light as they merge into the new year.”

That said, investors will continue seeking guidance from more economic data due later this week that may provide more clarity on the Fed’s interest-rate path in 2024. A revision of third-quarter GDP print is expected on Thursday morning, followed by Friday’s personal consumption expenditure (PCE) inflation report — the Fed’s preferred inflation gauge.

Companies in focus

• Shares of Alphabet Inc.
  GOOGL,
  +2.83%
  were jumping 3.3% on Wednesday following a report that said its Google unit plans to reorganize a large part of its advertising sales unit.

• Shares of FedEx Corp.
  FDX,
  -11.08%
  were slumping 11% after the package-delivery giant trimmed its full-year sales forecast, amid continued concerns about subdued shipping demand through the peak holiday season.

• Shares of General Mills Inc. 
  GIS,
  -2.55%
   were off 2.8% after the consumer-foods company reported fiscal second-quarter profit that beat expectations, while revenue missed and the full-year outlook as consumers continue “stronger-than-expected value-seeking behaviors.” 

• Toro Corp.’s stock 
  TORO,
  -2.15%
  was down 2.2% despite the lawn mower company’s fourth-quarter profit and revenue beat analyst estimates.