U.S. stocks exhibited volatility on Friday as the major indices approached a third consecutive week of gains, driven by optimism about a gentle economic landing in the U.S. and the potential for interest rate cuts in the first half of 2024.
Current Market Trends:
On Thursday, the Dow Jones Industrial Average fell 46 points, or 0.13%, to 34,945, ending a three-day winning streak. Meanwhile, the S&P 500 increased by 5 points, or 0.12%, reaching 4,508, and the Nasdaq Composite gained 10 points, or 0.07%, extending its winning streak for a third day.
The S&P 500 has risen by 2.1% this week, and the small-cap Russell 2000 (RUT) has surged by nearly 5%, according to data.
Market Drivers:U.S. stocks have shown significant gains over the past three weeks, with the S&P 500 up approximately 9.5%, the Nasdaq rising over 11.5%, and the Dow increasing by 7.5%, according to FactSet data. Many attribute this surge to indications that the Federal Reserve may achieve a "soft landing" for the U.S. economy, balancing inflation back to the Fed's 2% target without triggering a severe economic downturn. Expectations of possible interest rate cuts as early as March have also contributed to the stock market's positive momentum.
Eddy Elfenbein, manager of the CWS AdvisorShares Focused Equity ETF, and blogger at Crossing Wall Street, stated, "The major reason for the recent rally is that Wall Street had convinced itself that the Federal Reserve is all done with hiking rates this cycle. In fact, investors now expect the Fed to start cutting rates in less than six months."
Friday's market activity showed little change, reflecting the consolidation phase as traders processed the robust rally. Mark Grant, Chief Global Strategist at Colliers Securities, noted, "I think we're seeing some consolidation here."
During Friday's morning session, options tied to $2.4 trillion in stocks, exchange-traded funds, and equity indexes were expiring. Economic data released on Friday revealed a 1.9% increase in the construction of new homes in October as builders initiated new projects.
Investors also had additional earnings reports to assess, with Gap Inc. (GPS) shares surging by 30.87% after the company reported reduced discounting during the third quarter due to declining inventories.
San Francisco Fed President Mary Daly shared her perspective on Friday, suggesting that the central bank should adopt a wait-and-see approach to monitor how the economy develops, given the high uncertainty surrounding the outlook for the U.S. economy.
As a leading independent research provider, TradeAlgo keeps you connected from anywhere.