Wall St builds on rally as Fed euphoria lingers

By Stephen Culp

NEW YORK (Reuters) -U.S. stocks advanced on Monday as market participants parsed mounting expectations of interest rate cuts from the Federal Reserve in the coming year and looked ahead to a week of crucial economic data.

All three major U.S. stock indexes gained ground in a broad but modest rally, with the and the Nasdaq advancing the most and the Dow inching toward yet another all-time closing high, posting nominal gains.

Wall Street continues to build on seven straight weeks of gains, the S&P 500’s longest weekly winning streak since 2017, fueled by optimism of policy rate cuts in 2024, a fervor that Fed policy makers attempted to rein in on Monday.

The S&P 500 was last about 1.1% shy of its all-time record close, reached in January 2022.

“It’s a carry-over from the seven-week advance that we’ve seen, reflecting the confirmation by the Fed that they are likely finished raising rates and that they will start to cut interest rates at least by the second quarter of 2024,” said Sam Stovall, chief investment strategist of CFRA Research in New York. “But trees don’t grow to the sky, so sooner or later stocks will take a breather and digest some of these gains.”

Chicago Fed President Austan Goolsbee warned that the central bank has not pre-committed to cutting rates anytime soon, while Cleveland Fed President Loretta Mester said financial markets had got “a little bit ahead” of the central bank with respect to the timing and extent of interest rate cuts.

Even so, financial markets have priced in a 63.4% likelihood that the central bank will lower its Fed funds target rate by 25 basis points at its March monetary policy meeting, according to CME’s FedWatch tool.

“The Fed would like the market to respond in a more measured fashion, while also reminding investors that since the Fed is data-dependent, there’s no guarantee that what we think today will actually come to fruition,” Stovall added.

Later in the week, as the Christmas holiday draws near, the Commerce Department is expected to release its third and final take on third-quarter GDP on Thursday, to be followed by its broad-ranging Personal Consumption Expenditures (PCE) report on Friday, which will cover income growth, consumer spending, and crucially, inflation.

At 2:07 p.m. EST, the rose 19.2 points, or 0.05%, to 37,324.36, the S&P 500 gained 26.72 points, or 0.57%, to 4,745.91 and the added 107.49 points, or 0.73%, to 14,921.41.

Of the 11 major sectors in the S&P 500, communication services were up the most, with real estate suffering the biggest percentage drop.

Mounting attacks by militant groups on ships in the Red Sea sent crude prices higher over supply concerns, which in turn boosted energy stocks, which have largely been left behind by the recent rally.

S&P 500 energy stocks were last up 1.1%.

United States Steel (NYSE:) jumped 27.2% to a more than 12-year high after Japan’s Nippon Steel announced it would buy the steelmaker in a $14.9 billion deal including debt.

Apple (NASDAQ:) dipped 0.7% as China’s ban on the company’s iPhones and other foreign-made gadgets gathered momentum.

VF Corp (NYSE:) slid 7.6% after the Vans sneaker maker said it was investigating “unauthorized” activity on its computer systems, an incident that disrupted some of its business, including the ability to fulfill orders on its e-commerce site.

Advancing issues outnumbered declining ones on the NYSE by a 1.20-to-1 ratio; on Nasdaq, a 1.09-to-1 ratio favored decliners.

The S&P 500 posted 29 new 52-week highs and two new lows; the Nasdaq Composite recorded 110 new highs and 90 new lows.