The Dow Rises as the S&P 500 Continues Its March Toward Record Highs

In the initial trading session of the final, holiday-shortened week of 2023, U.S. stocks experienced marginal gains on Tuesday, extending the momentum from eight consecutive weeks of positive performance. The Dow Jones Industrial Average (DJIA) saw a rise of 100 points, or 0.3%, reaching 37,486.

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Simultaneously, the S&P 500 (SPX) increased by 13 points, or 0.3%, reaching 4,768, while the Nasdaq Composite (COMP) advanced by 53 points, or 0.4%, reaching 15,046. This positive trajectory follows a somewhat volatile pre-holiday trading session on Friday, culminating in the S&P 500, Dow, and Nasdaq each securing an eighth straight weekly gain. Notably, the S&P 500 concluded the week only 0.9% away from its record close of 4,796.56 recorded on January 2, 2022.

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The eight consecutive gains mark the longest winning streak for the S&P 500 since the week ending November 3, 2017, and for the Dow, the longest since February 22, 2019. Chris Larkin, Managing Director for Trading and Investing at E-Trade from Morgan Stanley, expressed optimism about the S&P 500's potential to achieve a record high and extend its weekly winning streak to nine, the longest since 2004. Larkin emphasized that the market's sustained momentum into the New Year hinges on the duration of positive sentiments regarding potential Federal Reserve rate cuts.

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Investors may be anticipating a "Santa Claus rally," a period characterized by stock market gains during the last five trading days of the calendar year and the first two sessions of the new year. Recent market optimism stems from the possibility of Federal Reserve interest rate cuts as early as the first half of 2024. However, analysts caution against overly optimistic expectations for this traditional year-end rally, emphasizing the need to consider the possibility that some expectations for Fed rate cuts may be excessively hopeful.

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Friday's data release revealed a decrease in the U.S. inflation rate, as measured by the Federal Reserve's preferred gauge, the personal-consumption expenditures index, marking the first decline since 2020. This suggests ongoing easing of price pressures.

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The S&P CoreLogic Case-Shiller 20-city home-price index exhibited a seasonally adjusted 0.6% increase in October compared to the previous month. Over the past year, home prices in these major U.S. metropolitan markets rose by 4.9%. The national index, a broader measure, recorded a 0.6% rise in October and a 4.8% increase over the past year. Both the 20-city and national indexes reached all-time highs.

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Looking ahead, the remainder of the week will offer only a limited number of economic updates, including weekly jobless-benefit claims and pending home sales on Thursday. The subsequent week will witness another shortened trading period, with markets closed on Monday in observance of the New Year's Day holiday.