Wall St climbs as rate-cut optimism lingers

By Sruthi Shankar and Johann M Cherian

(Reuters) -Wall Street’s main stock indexes rose on Tuesday, building on strong gains in recent weeks as investors continued to bet on a policy pivot by the Federal Reserve next year.

The benchmark trades less than 1% shy of its all-time closing high as traders price in an aggressive timetable for interest rate cuts next year after Fed Chair Jerome Powell said at the U.S. central bank’s policy meeting last week that its historic monetary tightening is likely over.

Despite attempts by policymakers to temper the optimism since the meeting, traders have priced in about 66% chance of the Fed cutting rates by 25 basis points in March, as per the CME Group’s (NASDAQ:) FedWatch tool, and cuts of 143 bps by December 2024. [FEDWATCH]

The blue-chip Dow secured a new all-time high, while the hit a record high. The small-caps index also advanced by 1.7% and is on course to outperform the broader market in December, up over 11% month-to-date.

“We’ve had a massive paradigm shift from the Federal Reserve in November and again in December where they signaled that they’re going to begin cutting rates,” said Adam Sarhan, chief executive of 50 Park Investments.

“So inflation is no longer an enemy number one for the Fed, and that sparked a big rally in the market because so far the economy hasn’t seen a recession.”

Meanwhile, a Commerce Department report showed single-family homebuilding surged in November. The PHLX Housing index gained 1.2%.

Investors are awaiting a slew of data this week including the final reading of third-quarter GDP and the monthly personal consumption expenditure index (PCE), the Fed’s preferred inflation gauge.

Richmond Fed President Thomas Barkin in an interview with Yahoo Finance welcomed the retreat in inflation but refrained from saying how that affects his outlook for central bank interest rate policy next year.

Fed Atlanta President Raphael Bostic and Fed Chicago President Austan Goolsbee are scheduled to speak later in the day. Bostic is a voting member in the FOMC’s rate-setting committee next year.

At 11:46 a.m. ET, the was up 219.66 points, or 0.59%, at 37,525.68, the S&P 500 was up 23.53 points, or 0.50%, at 4,764.09, and the was up 80.32 points, or 0.54%, at 14,985.51.

Light trading volumes are expected to impact market moves in the run-up to the Christmas and New Year holidays.

Among single stocks, Accenture (NYSE:) dipped 0.2% after the IT services provider issued a downbeat second-quarter revenue forecast.

Boeing (NYSE:) gained 1.7% after German airline Lufthansa said it ordered 40 737-8 MAX jets from the plane maker and agreed to 60 future purchasing options.

Kenvue (NYSE:) climbed 4.1% after a U.S. court ruled in favor of the consumer health company in a lawsuit which said exposure to its pain-reducing drug Tylenol might contribute to autism or attention-deficit hyperactivity disorder during pregnancy.

PepsiCo (NASDAQ:) slipped 0.4% after J.P. Morgan downgraded the stock to “neutral” from “overweight”, while Amgen (NASDAQ:) rose 1.7% after BMO upgraded its rating on the drugmaker to “outperform” from “market perform”.

Advancing issues outnumbered decliners by a 5.30-to-1 ratio on the NYSE and by a 2.95-to-1 ratio on the Nasdaq.

The S&P index recorded 40 new 52-week highs and one new lows, while the Nasdaq recorded 156 new highs and 65 new lows.