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Wall Street is on track for its longest streak of weekly gains in six years as a near-15 per cent rally in US stocks since late October puts blue-chips within sight of a record high.
Wednesday’s unexpectedly dovish shift by Federal Reserve chair Jay Powell added to the optimistic mood among investors who had already been buoyed by strong corporate earnings and the series of softer economic reports that set the stage for officials at the central bank to acknowledge the potential for interest rate cuts.
More cautious comments on Friday from New York Fed president John Williams and Raphael Bostic, his counterpart on the Atlanta Fed, that pushed back against the idea rates could be lowered soon, left the S&P 500 roughly flat on the day in afternoon trading. However, it was still up almost 2.5 per cent on the week and within 2 per cent of the record high it hit in January 2022.
The blue-chip benchmark’s seven-week hot streak is its best run of weekly gains since November 2017.
“Powell not only refilled the punchbowl this week, he spiked it. No one wants to be Scrooge or the Grinch just now,” said Steve Sosnick, chief market strategist at Interactive Brokers.
Even so, he noted the disparity between the Fed’s new forecasts suggesting three quarter-point rate cuts next year and the four investors had factored in before the central bank’s meeting. Interest rate futures suggested on Friday that investors expect at least five, and probably six rate cuts in 2024.
“Ask yourself this: what is going to cause the Fed to cut rates six times next year. Is it anything good?” added Sosnick.
The upbeat mood has however spurred a recovery which has dragged out-of-favour corners of the market into positive territory for the year, adding to hopes that a more broadly-based rally could push indices higher still in 2024.
The equal-weighted S&P 500 — where each company counts equally, regardless of its size — has added 17 per cent since late October, turning what was a 5 per cent loss for the year into an 11 per cent gain.
This year’s 23 per cent rally in the regular S&P 500, weighted by each stock’s market capitalisation, has been largely driven by the so-called Magnificent Seven technology stocks — Apple, Microsoft, Google parent Alphabet, Facebook parent Meta, Tesla, Nvidia and Amazon. That concentration had sparked worries that gains could quickly evaporate if any one of those faltered.
The small-cap Russell 2000 has meanwhile climbed 22 per cent since the October 27 nadir for markets, in the process managing its shortest-ever swing from a 12-month low to a 12-month peak, according to analysts at Bespoke Investment Group. The analysts also noted that 949 US stocks hit 12-month highs on Thursday compared with just 26 making similar lows.
“We don’t recall seeing this 52-week high number get this close to four digits,” they added.
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