Dow posts third straight record close, S&P 500 scores longest weekly win streak in six years

How stock indexes traded

• The Dow Jones Industrial Average
  DJIA
  rose 56.81 points, or 0.2%, to close at a record 37,305.16.

• The S&P 500
  SPX
  was about flat, slipping less than 0.1%, to finish at 4,719.19

• The Nasdaq Composite
  COMP
  gained 52.36 points, or 0.4%, to end at 14,813.92.

What drove markets

U.S. stocks finished mostly higher Friday, with the Dow Jones Industrial Average logging a third straight record close.

Equities broadly rallied this week after investors digested a closely watched reading on U.S. inflation as well as the Federal Reserve’s latest policy statement and projections on interest rates. The Dow, S&P 500 and Nasdaq Composite each logged a seventh straight week of gains.

The “more optimistic tone of markets over the last several weeks has been justified,” Russell Price, chief economist at Ameriprise Financial, said in a Friday phone call. It’s “reasonable” for the stock market to be pricing in rate cuts by the Federal Reserve in 2024, with the recent drop in 10-year Treasury yields helping to lift equities, he said.  

Price said he’s expecting the Fed may begin cutting rates in June and the U.S. economy will slow to a “sustainable” pace of growth in 2024. In his view, real gross domestic product may rise 1.8% to 1.9% next year.

Nearly all of the S&P 500’s 11 sectors finished with gains this week, while small-capitalization stocks saw a stronger rally than large-cap equities.

The small-cap Russell 2000 index
RUT
posted a weekly gain of around 5.6%, FactSet data show. The S&P 500 rose around 2.5% this week.

At his press conference on Wednesday, Fed Chair Jerome Powell gave “a nod” that inflation was on the right path and lower rates were on the horizon next year, according to Price. But when it comes to the federal-funds futures, Price said that traders appear to have gotten “too far ahead” in their bets on rate cuts.

Fed-funds futures pointed to the central bank starting to reduce its benchmark rate as soon as March, according to the CME FedWatch Tool.

Stocks hit a speed bump in Friday’s trading session after New York Federal Reserve Bank President John Williams pushed back against those rate expectations during an interview with CNBC. “We aren’t really talking about cutting interest rates right now,” Williams said.

Inflation, as measured by the consumer-price index, slowed to a year-over-year rate of 3.1% in November, down significantly from last year’s peak of 9.1% in June.  But “it’s too early to call ‘mission accomplished’ just yet” for the Fed’s goal of bringing inflation down to its 2% target, said Price.

Still, Powell was explicit during his press conference about not needing a recession to cut rates, according to Nationwide’s chief of investment research Mark Hackett. “That was code for a soft landing,” Hackett said by phone Friday. 

See: Williams says the Fed isn’t ‘really talking about cutting interest rates right now’

On the economic news front Friday, the New York Fed’s Empire State manufacturing survey showed U.S. manufacturing activity continued to struggle as the gauge tumbled to a four-month low. Flash services and manufacturing PMIs from S&P affirmed that manufacturing activity remained weak, while services activity reached a five-month high.

Read: U.S. economy posts steady but lackluster growth at year’s end, S&P finds

Meanwhile, the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
fell 31.7 basis points this week to 3.927%, the largest weekly drop since November 2022, according to Dow Jones Market Data.

The S&P 500 ended Friday about flat, but just 1.6% below its record close, reached Jan. 3, 2022.

“The momentum in the market is undeniably incredibly strong right now,” said Nationwide’s Hackett, though on Friday investors appeared to be taking “a natural break.”

Companies in focus

• Palantir Technologies Inc. shares
  PLTR,
  +2.39%
  slipped about 0.1% on Friday after the company announced an extension to a U.S. Army contract.

• Steel Dynamics Inc.’s shares
  STLD,
  +0.66%
  jumped 4.5% after the company reported earnings, making it one of the S&P 500’s best performers in Friday’s trading session.

• Costco Wholesale Corp. shares
  COST,
  +0.52%
  climbed around 4.5% after reporting fiscal first-quarter earnings and revenue largely in line with expectations following the market’s close on Thursday, and announced a special dividend of $15 a share.

• JD.com
  JD,
  +2.33%
  gained 4.5% as fresh stimulus out of China helped boost shares of companies based in the world’s second-largest economy. Alibaba Group Holding Ltd.’s stock
  BABA,
  +2.32%
  rose 2.8%.