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NEW YORK, January 5, 2024 – U.S. stocks surged to record highs Friday despite a jobs report that muddied the waters for potential Federal Reserve interest rate cuts, signaling a resilient market willing to bet on continued growth even amidst economic uncertainty.
Stocks Hit Records as Job Market Shows Resilience
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Investors shrugged off lukewarm jobs data, pushing the S&P 500, Dow, and Nasdaq to all-time highs.
- The S&P 500 climbed 0.6% to a new record, surpassing its previous high set earlier in the week.
- The Dow Jones Industrial Average added 237 points,or 0.5%, also reaching a record.
- The Nasdaq composite led gains with a 0.8% increase.
- A surprisingly strong unemployment rate tempered expectations for immediate rate cuts.
The S&P 500 rose 44.82 points to 6,966.28. The Dow Jones Industrial Average added 237.96 to 49,504.07, and the Nasdaq composite climbed 191.33 to 23,671.35.The market’s positive reaction suggests investors are focusing on the overall strength of the economy and are willing to overlook short-term uncertainties regarding interest rate policy.
Thursday declaration of a plan to lower mortgage rates. Trump proposed the purchase of $200 billion in mortgage bonds,a tactic previously employed by the federal Reserve to reduce borrowing costs. FirstSource, a building products supplier, jumped 12%, while Lennar rallied 8.9%, D.R.Horton climbed 7.8%, and PulteGroup rose 7.3%.
Mixed Signals and Shifting Expectations
The U.S.Labor Department reported that employers hired fewer workers in December than anticipated, but the unemployment rate unexpectedly improved. This mixed data led traders to scale back expectations for a rate cut at the Fed’s upcoming meeting later this month. CME Group data indicates a mere 5% chance of a cut, down from 11% the previous day. However, the market still largely anticipates at least two rate cuts throughout the year.
What happens if the Fed cuts rates? Lower interest rates can stimulate economic growth and boost investment prices, but they also carry the risk of exacerbating inflation, which has remained stubbornly above the Fed’s 2% target.
Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, noted, “Until the data provide a clearer direction, a divided Fed is likely to stay that way. Lower rates are likely coming this year, but the markets may have to be patient.”
Treasury yields were mixed, with the 10-year Treasury easing to 4.16% from 4.19% late Thursday, while the two-year Treasury yield rose to 3.53% from 3.49%. A separate report from the University of Michigan indicated strengthening consumer sentiment, especially among lower-income households, and a potential drop in inflation expectations to their lowest level in a year.
Smaller Stocks Outperform Big Tech
Recent market gains have broadened beyond Big Tech and AI stocks, with smaller companies leading the charge. The Russell 2000 climbed 4.6% this week, significantly outpacing the S&P 500’s 1.6% rise.
Global markets also showed positive momentum, with the French CAC 40 climbing 1.4% and Japan’s Nikkei 225 jumping 1.6%.
WD-40 tumbled 6.6% after reporting a weaker-than-expected profit for the latest quarter, though Chief Financial Officer Sara Hyzer attributed the results to timing issues rather than declining demand, and the company reaffirmed its financial forecasts.
General Motors experienced a 2.7% drop after announcing a $6 billion hit to
