Sarah Travers
Wall Street is on the brink of securing its 12th winning week out of the last 13 as U.S. stocks continue to hold strong near record highs. In a morning trading session, the S&P 500 edged up by 0.1%, marking the fifth consecutive day of setting record highs. The Dow Jones Industrial Average also saw gains of 0.2%, while the Nasdaq composite experienced a slight 0.1% dip.
Despite these overall gains, there were notable individual stock performances impacting the market. Intel, for instance, saw an 11.1% drop in its stock value, even though the chip company reported stronger profits for the final quarter of 2023 than analysts had anticipated. However, its forecasts for revenue and profit in early 2024 fell short of Wall Street’s expectations.
Visa also experienced a decline, with its stock down by 1.6%, despite reporting better-than-expected results. Analysts acknowledged the solid figures but pointed out the company’s mention of slowing trends in January.
Despite these fluctuations, the U.S. stock market is ending another winning week, with reports indicating that inflation is showing signs of cooling while the economy continues to grow. This unexpected scenario has sparked hopes of a dream scenario for Wall Street: one where a resilient economy drives company profits higher, while inflation moderates enough to prompt the Federal Reserve to consider cutting interest rates multiple times in the coming year.
The latest report on Friday revealed that the preferred inflation measure of the Federal Reserve behaved as expected in December, with overall inflation matching the rate of 2.6% observed in November. This figure, which excludes food and fuel prices, cooled to 2.9%, slightly better than economists had predicted.
At the same time, consumer spending in the U.S. exceeded expectations in December, alleviating concerns that the resilient U.S. economy, which has defied predictions of a recession, might exert upward pressure on inflation.
Market participants are hopeful that the labor market will soften in the coming months, further alleviating inflationary pressures while allowing the economy to continue growing. This scenario has been described as the “holy grail” of non-inflationary growth by EY Chief Economist Gregory Daco.
The bond market also experienced fluctuations in response to the report, with Treasury yields initially fluctuating before ending slightly higher. The yield on the 10-year Treasury climbed to 4.15% from 4.12% late Thursday.
The Federal Reserve’s upcoming meeting next week is expected to result in no changes to interest rates. However, traders are divided on the possibility of rate cuts in March, a potential reversal of the Fed’s previous stance, which saw interest rate hikes in the past two years aimed at curbing inflation.
Traders are also betting on more interest rate cuts than what the Fed has indicated, as per data from CME Group. Critics have voiced concerns that this optimism may set financial markets up for disappointment following their recent substantial rallies.
Nevertheless, the mood on Wall Street remains mostly upbeat. American Express, for instance, saw a notable 7.5% increase in its stock value despite weaker-than-expected results. The company also announced plans to boost its dividend payout to investors. Levi Strauss also experienced gains of 2.5% after reporting slightly stronger profits for the latest quarter and announcing workforce cuts as part of its cost-saving plan.
Internationally, stock indexes in Europe mostly rose, while those in Asia displayed mixed performances. Hong Kong’s Hang Seng, for instance, fell 1.6%, erasing some of its recent gains, while Japan’s Nikkei 225 declined by 1.3% after experiencing significant gains earlier in the year.
