The stock market edged toward record levels on Friday, driven by encouraging economic indicators and declining inflation reports. In early trading, the S&P 500 rose 0.4%, approaching its record set nearly two years ago, while the Dow Jones Industrial Average increased 0.2%, and the Nasdaq composite inched 0.3% higher.
However, Nike faced a significant setback, plunging 10.7% after reducing its revenue forecast for the fiscal year. The company attributed this downturn to challenges in China, the impact of a stronger U.S. dollar on exporters, and other obstacles. Conversely, biopharmaceutical company Karuna Therapeutics soared by 47% after agreeing to a $14 billion cash deal for acquisition by Bristol Myers Squibb.
Investor focus remained on economic reports released on Friday, causing some fluctuations in Treasury yields. The stock market’s recent surge has been fueled by falling yields, boosting the economy by encouraging borrowing and alleviating pressure on the financial system. The hope is that declining inflation will prompt the Federal Reserve to cut interest rates in 2024.
New data indicated that the Fed’s preferred inflation measure slowed more than expected, dropping to 2.6% in November from 2.9% the previous month. Despite this positive sign for economic growth, there are concerns that underlying inflation pressure persists. Additional reports revealed unexpected rises in consumer spending and stronger-than-expected orders for durable goods in November.
The Federal Reserve faces a delicate balancing act, aiming to control inflation by raising interest rates without triggering a recession. Despite efforts to moderate inflation, robust consumer spending may complicate the Fed’s mission.
The 10-year Treasury yield initially rose to nearly 3.90% but retreated to 3.86%, down from 3.89% late Thursday. Traders are betting that the Federal Reserve will cut its main interest rate by at least 1.50 percentage points by the end of next year, despite the central bank’s projections suggesting a more moderate approach.
While the stock market has rallied on expectations of interest rate cuts, some analysts caution against excessive optimism. There is skepticism regarding the pace of rate cuts, and the recent stock market surge might be overblown. In international markets, European indexes rose modestly, while Hong Kong’s Hang Seng dropped 1.7% due to new regulations for online gaming in China, impacting Tencent and NetEase stocks.
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