U.S. Stocks Move Higher, S&P 500 Looking to Set a Record, as Rate-cut Hopes Boost Sentiment

Early on Tuesday, U.S. stocks demonstrated an upward trajectory, with the S&P 500 approaching its record high, as investors continued to celebrate the anticipated easing of monetary policy by the Federal Reserve in 2024, aligning with a perceived 'soft landing' for the U.S. economy.

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Here's how the major indices were performing:

• The S&P 500 rose by 17 points, or 0.3%, reaching 4,758.
• The Dow Jones Industrial Average increased by 154 points, or 0.4%, reaching 37,460.
• The Nasdaq Composite gained 65 points, or 0.4%, reaching 14,970.

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On the previous day, the Dow achieved yet another record closing, the S&P 500 gained 0.5%, and the Nasdaq Composite rose by 0.6%.

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The S&P 500 index currently stands at less than 1% below its previous record close, fueled by the optimism surrounding the Federal Reserve's potential interest rate cuts by the spring of the upcoming year. The benchmark had set a record of 4,796.56 on January 3, 2022.

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Despite some recent statements from certain Fed officials pushing back against expectations of early rate cuts, investors seem undeterred for now. Richmond Fed President, on Tuesday, added a positive note, stating that there is "good progress" in combating inflation. When questioned about specifics regarding rate cuts, he mentioned that it was premature. However, if inflation continues to decelerate, the central bank would respond accordingly by cutting interest rates.

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Market participants are eagerly awaiting further insights from Atlanta Fed President Raphael Bostic's upcoming speech at 12:30 p.m. Eastern.

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Simultaneously, the Bank of Japan emphasized the ongoing availability of a significant source of low-cost funds. The BOJ left its main interest rate at minus 0.1%, and Governor Kazuo Ueda, during a news conference, indicated no inclination to depart from the central bank's ultraloose monetary policy, despite inflation consistently exceeding its 2% target for 19 consecutive months. Consequently, the Japanese yen depreciated by 1.2%, and the Nikkei 225 stock index rose by 1.4%, accompanied by a decline in 10-year government bond yields to 0.634%, the lowest in almost four months.

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Steve Clayton, Head of Equity Funds at Hargreaves Lansdown, noted the yen's weakening as a response to investors expressing their reservations when central banks adopt what is perceived as unsustainable positions.

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Attention was also directed towards the oil market after Brent crude jumped on Monday, prompted by BP's announcement of halting shipments through the Red Sea due to Houthi attacks in Yemen. Oil futures remained steady on Tuesday.

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Concerns arose about potential inflationary pressures and rising costs for global shipping companies avoiding the region, thereby disrupting global trade routes. Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, emphasized the threat to inflation, recalling how pandemic-related supply chain disruptions had majorly contributed to inflation reaching almost 10% in the U.S.

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Despite these concerns, there was little evidence on Tuesday that investors were overly preoccupied with this narrative. The 10-year U.S. Treasury yields dipped by 4 basis points to 3.915%, down from Monday's 3.955%.

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Investors also received insights into the housing market amid a period of declining mortgage rates. November housing starts exhibited a notable 14.8% increase after a revised 0.2% gain in October, marking the highest reading since May. Concurrently, building permits experienced a 2.5% decline in November.