Dow Oscillates Between Gains and Losses as U.S. Stocks Are on Track for Their Longest Winning Streak Since 2017

On Friday, the Dow Jones Industrial Average retreated from its recent record levels following remarks from Federal Reserve Bank of New York President John Williams that pushed back against market expectations for interest-rate cuts in the coming year. Despite this pullback, the major U.S. indexes remained on course for a seventh consecutive week of gains, marking the longest such streak for the S&P 500 index since November 2017, as per data.

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As of Friday's trading, the S&P 500 was up 2 points, or 0.1%, reaching 4,722, while the Dow Jones Industrial Average declined by 19 points, or 0.1%, to 37,227. The Nasdaq Composite gained 78 points, or 0.5%, to 14,839. All three indexes had posted gains of more than 2% for the week, with the S&P 500 up 2.3%, poised for its most substantial weekly advance since the week ending November 3.

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The market optimism earlier in the week was fueled by a surprise from the Federal Reserve, which, during its meeting, signaled that interest rates may have peaked and outlined potential rate cuts for 2024. This contributed to a broad rally in stocks, with small-cap stocks outperforming their larger counterparts. The small-cap Russell 2000 index showed a gain of more than 6% for the week by early Friday.

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However, the initial positive momentum waned after Federal Reserve's John Williams contradicted market expectations in an interview with CNBC, stating, "We aren't really talking about cutting interest rates right now." Despite this, the S&P 500 rebounded into positive territory, trading within 1.75 percentage points of its record close from January 2022. The yield on the 10-year Treasury note hovered around 3.920%.

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Investors have found justification in their belief that stocks can continue their upward trajectory. Matt Weller, global head of research at Forex.com and City Index, noted that while seven-week winning streaks are uncommon, they typically occur in the middle of secular bull markets. Weller stated, "After a huge rally through the middle of the week, it's a foregone conclusion that the S&P 500 will finish higher for the 7th consecutive week, a relatively rare streak historically."

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Friday's trading session, known as "triple-witching," was expected to be more volatile, with options contracts tied to over $5 trillion worth of stocks, exchange-traded funds, and indexes set to expire. Additionally, money managers were anticipated to finalize changes to their holdings as the quarterly rebalancing of the S&P 500 and Nasdaq-100 was scheduled after the market close.

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U.S. economic data released on Friday included the New York Fed's Empire State manufacturing survey, indicating a four-month low in U.S. manufacturing activity. Subsequent flash services and manufacturing PMIs from S&P confirmed weak manufacturing activity, with services activity reaching a five-month high.

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The Federal Reserve's stance contrasted sharply with the decisions of the Bank of England and the European Central Bank, both of which left interest rates unchanged on Thursday. ECB President Christine Lagarde stated that rate cuts would not be considered "until data turns conclusive." However, fresh economic data from Europe suggested that Lagarde might face increased pressure in the new year, with Germany's bunds falling and the euro weakening in response to disappointing composite purchasing managers index (PMI) data. The December composite PMI for Europe fell to 46.7, below expectations, with French PMI data also disappointing at 43.7.