12/22/2023

Wall Street rose after previous day’s losses

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Key points:

  • US stock indices closed higher on Thursday, recouping most of the previous day’s losses.
  • The reason of the investor’s optimism is the hope that the Federal Reserve System (FRS) will ease monetary policy.
  • Economic data released Thursday showed U.S. economic growth in the third quarter was not as robust as initially reported and the labor market is struggling.

US stocks rebounded on Thursday, erasing most of the previous day’s losses, as encouraging economic data sparked optimism that the Federal Reserve will adopt a more dovish monetary policy, rejuvenating investors’ risk appetite.

Major stock indices, including the Dow Jones Industrial Average (.DJI), the S&P 500 (.SPX), and the Nasdaq Composite Index (.IXIC), all closed higher, with the S&P 500 marking 17 new 52-week highs.

The Dow Jones Industrial Average (.DJI) rose 322.35 points, or 0.87%, to 37,404.35, the S&P 500 (.SPX) added 48.4 points, or 1.03%, to 4,746. 75, and the Nasdaq Composite Index .IXIC added 185.92 points, or 1.26%, to 14,963.87.

The broad-based rally was fueled by a combination of factors, including positive economic data and renewed hope for Fed easing.

Investors’ appetite for risk was further bolstered by the fact that the S&P 500 and Nasdaq Composite indices gained more than 1% towards the end of the trading day.

Overall, the stock market’s rebound reflects a growing sentiment that the Fed may soon adopt a more accommodative monetary policy, easing concerns about a prolonged economic slowdown.

Technology stocks were mostly higher

Tech stocks surged on Thursday as chip prices climbed, with Micron Technology (MU.O) leading the charge after a stronger-than-anticipated quarterly outlook.

The tech-heavy Nasdaq Composite Index (.IXIC) gained momentum, with shares of electric vehicle (EV) makers Tesla (TSLA.O), Lucid Group (LCID.O), and Rivian Automotive (RIVN.O) rising between 1.6% and 3.0%.

A report suggesting the US may consider raising tariffs on Chinese EVs fueled optimism among EV investors.

On the other hand, shares of aerospace supplier Triumph Group (TGI.N) soared 32.9% after announcing the sale of its aftermarket components business to AAR Corp (AIR.N) for $725 million.

Blackberry’s US-listed shares tumbled 12.7% after disappointing fourth-quarter revenue guidance.

The Philadelphia SE Semiconductor Index (.SOX), tracking residential chip companies, gained 2.8%, reflecting the broader bullish sentiment in the chip sector.

State of the economy: are hopes for a Fed rate cut justified?

On Thursday, economic data revealed that third-quarter US economic growth was not as strong as initially reported, and the labor market is facing challenges, which the Federal Reserve considers to be a headwind in efforts to curb inflation.

“The fact that third-quarter GDP numbers were not revised upward, but were in fact cut, gives investors confidence that the path the Fed is on as it announced last week will not change anytime soon.”

said Peter Tooze, president of Chase Investment Counsel in Charlottesville, Virginia.

An important test will come on Friday when the November Personal Consumer Expenditures Price Index (PCE), the Fed’s preferred inflation measure, is released.

Economists now expect the PCE to be unchanged from the previous month, bringing the annual inflation rate over the past six months within a couple of tenths of the Fed’s target of 2%.

Ahead of the Fed’s next meeting on January 30-31, traders will have even more information to consider, including the US unemployment rate, which now stands at 3.7%, just a tenth of a percentage point higher than when the Fed began raising interest rates.

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