U.S. stocks advanced on Tuesday, extending an eight-week rally in the year’s final week on expectations that the Federal Reserve will begin cutting interest rates as soon as March.
All three major U.S. stock indexes were in positive territory in light trading, with interest rate sensitive megacap stocks and chip shares leading the upward momentum.
All three are on track for monthly, quarterly and annual gains.
On Friday, the three indexes notched their eighth straight weekly gains - their longest weekly winning streaks in years - as economic data indicated inflation is easing down closer to the Fed’s average annual 2% target.
“It’s going to be a fairly quiet trading session. The momentum stays towards the upside, but I don’t think we’re going to see any strong volume that would suggest we could be in for a strong rally,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“We had a good inflation number on Friday. If inflation continues to move down in January and February, there’s a good chance that the Fed may cut (rates) earlier than anticipated.”
The S&P 500 is on track to post its biggest quarterly gain in three years, and is within 0.5% of its all-time closing high reached in January 2022.
Closing above that level - 4,796.56 - would confirm the benchmark index has been in a bull market since touching the bear market nadir, the closing low reached in October 2022.
Stocks’ eight-week rally shifted into overdrive two weeks ago after the Fed signaled the end of its rate hike cycle and opened the door to potential rate cuts in 2024.
At last glance, markets had baked in a 72.7% likelihood of a 25 basis point reduction in the Fed funds target rate as soon as March, according to CME’s FedWatch tool.
At 2:10 p.m. ET, the Dow Jones Industrial Average rose 152.85 points, or 0.41%, to 37,538.82, the S&P 500 gained 18.88 points, or 0.40%, at 4,773.51 and the Nasdaq Composite added 66.63 points, or 0.44%, at 15,059.61.
All 11 major sectors of the S&P 500 were green.
Energy shares enjoyed the heftiest percentage gain, of more than 3%, boosted by surging crude prices as Middle East strife ratcheted up supply concerns, while optimism over Fed rate cuts fueled demand hopes.
Shares of Manchester United rose 2.9% after billionaire Jim Ratcliffe struck a long-awaited deal to buy a 25% stake in the soccer club at $33 per share.
Gracell Biotechnologies shot up 60.3% after AstraZeneca said it will buy the China-based firm for up to $1.2 billion.
Intel Corp rose 4.7% following the Israeli government’s agreement to endow a $3.2 billion grant for a $25 billion plant the chipmaker plans to build in southern Israel.
Advancing issues outnumbered decliners on the NYSE by a 3.68-to-1 ratio; on Nasdaq, a 2.23-to-1 ratio favored advancers.
The S&P 500 posted 41 new 52-week highs and no new lows; the Nasdaq Composite recorded 186 new highs and 38 new lows.
Rieder believes that Treasuries at the extreme short and long ends of the yield curve are unlikely to see more meaningful gains after their rapid appreciation of the last several months.
“Much of the 2024 return for the very front end and for the very back end, I think, has already been achieved,” he said.
Benchmark 10-year Treasury yields, which move inversely to prices, have declined from over 5% in October to less than 3.9% this week, and 30-year bond yields have fallen by about 100 basis points from their October highs.
Rieder expects rate cuts of 75 to 100 basis points next year starting in May. Certain parts of the Treasury curve, such as bonds with five- or seven-year maturities, are set to benefit the most from the cuts, with five-year yields possibly declining by 50 basis points or more, he added.
He has moved the interest rate exposure of the BlackRock Flexible Income ETF away from short-term debt and more into the so-called belly of the Treasury curve. The duration of the BlackRock Total Return ETF, which he also manages and which was launched last week, is of about six years, he said.