Tag: RUT

The Magnificent 7 dominated 2023. Will the rest of the stock market soar in 2024?

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2023 will go down in history for the start of a new bull market, albeit a strange one.

Despite some year-end catch-up by the rest of the S&P 500 index, megacap technology stocks, characterized by the so-called Magnificent Seven, have dominated gains for the large-cap benchmark SPX, which is up 23.8% for the year through Friday’s close.

That’s…

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December 24, 2023
Fed could be the Grinch who 'stole' cash earning 5%. What a Powell pivot means for investors.

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Yields on 3-month
BX:TMUBMUSD03M
and 6-month
BX:TMUBMUSD06M
Treasury bills have been seeing yields north of 5% since March when Silicon Valley Bank’s collapse ignited fears of a broader instability in the U.S. banking sector from rapid-fire Fed rate hikes.

Six months later, the Fed, in its final meeting of the year, opted to keep its policy rate unchanged at 5.25% to 5.5%, a 22-year high, but Powell also finally signaled that enough was likely enough, and that a policy pivot to interest rate cuts was likely next year.

Importantly, the central bank chair also said he doesn’t want to make the mistake of keeping borrowing costs too high for too long. Powell’s comments helped lift the Dow Jones Industrial Average
DJIA
above 37,000 for the first time ever on Wednesday, while the blue-chip index on Friday scored a third record close in a row.

“People were really shocked by Powell’s comments,” said Robert Tipp, chief investment strategist, at PGIM Fixed Income. Rather than dampen rate-cut exuberance building in markets, Powell instead opened the door to rate cuts by midyear, he said.

New York Fed President John Williams on Friday tried to temper speculation about rate cuts, but as Tipp argued, Williams also affirmed the central bank’s new “dot plot” reflecting a path to lower rates.

“Eventually, you end up with a lower fed-funds rate,” Tipp said in an interview. The risk is that cuts come suddenly, and can erase 5% yields on T-bills, money-market funds and other “cash-like” investments in the blink of an eye.

Swift pace of Fed cuts

When the Fed cut rates in the past 30 years it has been swift about it, often bringing them down quickly.

Fed rate-cutting cycles since the ’90s trace the sharp pullback also seen in 3-month T-bill rates, as shown below. They fell to about 1% from 6.5% after the early 2000 dot-com stock bust. They also dropped to almost zero from 5% in the teeth of the global financial crisis in 2008, and raced back down to a bottom during the COVID crisis in 2020.

Rates on 3-month Treasury bills dropped suddenly in past Fed rate-cutting cycles

FRED data

“I don’t think we are moving, in any way, back to a zero interest-rate world,” said Tim Horan, chief investment officer fixed income at Chilton Trust. “We are going to still be in a world where real interest rates matter.”

Burt Horan also said the market has reacted to Powell’s pivot signal by “partying on,” pointing to stocks that were back to record territory and benchmark 10-year Treasury yield’s
BX:TMUBMUSD10Y
that has dropped from a 5% peak in October to 3.927% Friday, the lowest yield in about five months.

“The question now, in my mind,” Horan said, is how does the Fed orchestrate a pivot to rate cuts if financial conditions continue to loosen meanwhile.

“When they begin, the are going to continue with rate cuts,” said Horan, a former Fed staffer. With that, he expects the Fed to remain very cautious before pulling the trigger on the first cut of the cycle.

“What we are witnessing,” he said, “is a repositioning for that.”

Pivoting on the pivot

The most recent data for money-market funds shows a shift, even if temporary, out of “cash-like” assets.

The rush into money-market funds, which continued to attract record levels of assets this year after the failure of Silicon Valley Bank, fell in the past week by about $11.6 billion to roughly $5.9 trillion through Dec. 13, according to the Investment Company Institute.

Investors also pulled about $2.6 billion out of short and intermediate government and Treasury fixed income exchange-traded funds in the past week, according to the latest LSEG Lipper data.

Tipp at PGIM Fixed Income said he expects to see another “ping pong” year in long-term yields, akin to the volatility of 2023, with the 10-year yield likely to hinge on economic data, and what it means for the Fed as it works on the last leg of getting inflation down to its 2% annual target.

“The big driver in bonds is going to be the yield,” Tipp said. “If you are extending duration in bonds, you have a lot more assurance of earning an income stream over people who stay in cash.”

Molly McGown, U.S. rates strategist at TD Securities, said that economic data will continue to be a driving force in signaling if the Fed’s first rate cut of this cycle happens sooner or later.

With that backdrop, she expects next Friday’s reading of the personal-consumption expenditures price index, or PCE, for November to be a focus for markets, especially with Wall Street likely to be more sparsely staffed in the final week before the Christmas holiday.

The PCE is the Fed’s preferred inflation gauge, and it eased to a 3% annual rate in October from 3.4% a month before, but still sits above the Fed’s 2% annual target.

“Our view is that the Fed will hold rates at these levels in first half of 2024, before starting cutting rates in second half and 2025,” said Sid Vaidya, U.S. Wealth Chief Investment Strategist at TD Wealth.

U.S. housing data due on Monday, Tuesday and Wednesday of next week also will be a focus for investors, particularly with 30-year fixed mortgage rate falling below 7% for the first time since August.

The major U.S. stock indexes logged a seventh straight week of gains. The Dow advanced 2.9% for the week, while the S&P 500
SPX
gained 2.5%, ending 1.6% away from its Jan. 3, 2022 record close, according to Dow Jones Market Data.

The Nasdaq Composite Index
COMP
advanced 2.9% for the week and the small-cap Russell 2000 index
RUT
outperformed, gaining 5.6% for the week.

Read: Russell 2000 on pace for best month versus S&P 500 in nearly 3 years

Year Ahead: The VIX says stocks are ‘reliably in a bull market’ heading into 2024. Here’s how to read it.

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December 17, 2023
Dow nabs 3rd straight record close, S&P has longest weekly win streak in 6 years
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U.S. stocks closed mostly higher Friday, with major U.S. equity indexes booking a seventh straight week in the green in the wake of the Federal Reserve’s policy meeting.

The S&P 500 saw its longest weekly winning streak since November 2017, according to Dow Jones Market Data.
How stock indexes traded

The Dow Jones Industrial Average
DJIA
rose 56.81 points, or 0.2%, to close at a record 37,305.16.

The S&P 500
SPX
was about flat, slipping less than 0.1%, to finish at 4,719.19

The Nasdaq Composite
COMP
gained 52.36 points, or 0.4%, to end at 14,813.92.

What drove markets

U.S. stocks finished mostly higher Friday, with the Dow Jones Industrial Average logging a third straight record close.

Equities broadly rallied this week after investors digested a closely watched reading on U.S. inflation as well as the Federal Reserve’s latest policy statement and projections on interest rates. The Dow, S&P 500 and Nasdaq Composite each logged a seventh straight week of gains.

The “more optimistic tone of markets over the last several weeks has been justified,” Russell Price, chief economist at Ameriprise Financial, said in a Friday phone call. It’s “reasonable” for the stock market to be pricing in rate cuts by the Federal Reserve in 2024, with the recent drop in 10-year Treasury yields helping to lift equities, he said.

Price said he’s expecting the Fed may begin cutting rates in June and the U.S. economy will slow to a “sustainable” pace of growth in 2024. In his view, real gross domestic product may rise 1.8% to 1.9% next year.

Nearly all of the S&P 500’s 11 sectors finished with gains this week, while small-capitalization stocks saw a stronger rally than large-cap equities.

The small-cap Russell 2000 index
RUT
posted a weekly gain of around 5.6%, FactSet data show. The S&P 500 rose around 2.5% this week.

At his press conference on Wednesday, Fed Chair Jerome Powell gave “a nod” that inflation was on the right path and lower rates were on the horizon next year, according to Price. But when it comes to the federal-funds futures, Price said that traders appear to have gotten “too far ahead” in their bets on rate cuts.

Fed-funds futures pointed to the central bank starting to reduce its benchmark rate as soon as March, according to the CME FedWatch Tool.

Stocks hit a speed bump in Friday’s trading session after New York Federal Reserve Bank President John Williams pushed back against those rate expectations during an interview with CNBC. “We aren’t really talking about cutting interest rates right now,” Williams said.

Inflation, as measured by the consumer-price index, slowed to a year-over-year rate of 3.1% in November, down significantly from last year’s peak of 9.1% in June. But “it’s too early to call ‘mission accomplished’ just yet” for the Fed’s goal of bringing inflation down to its 2% target, said Price.

Still, Powell was explicit during his press conference about not needing a recession to cut rates, according to Nationwide’s chief of investment research Mark Hackett. “That was code for a soft landing,” Hackett said by phone Friday.

See: Williams says the Fed isn’t ‘really talking about cutting interest rates right now’

On the economic news front Friday, the New York Fed’s Empire State manufacturing survey showed U.S. manufacturing activity continued to struggle as the gauge tumbled to a four-month low. Flash services and manufacturing PMIs from S&P affirmed that manufacturing activity remained weak, while services activity reached a five-month high.

Read: U.S. economy posts steady but lackluster growth at year’s end, S&P finds

Meanwhile, the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
fell 31.7 basis points this week to 3.927%, the largest weekly drop since November 2022, according to Dow Jones Market Data.

The S&P 500 ended Friday about flat, but just 1.6% below its record close, reached Jan. 3, 2022.

“The momentum in the market is undeniably incredibly strong right now,” said Nationwide’s Hackett, though on Friday investors appeared to be taking “a natural break.”

Companies in focus

Palantir Technologies Inc. shares
PLTR,
-0.05%
slipped about 0.1% on Friday after the company announced an extension to a U.S. Army contract.

Steel Dynamics Inc.’s shares
STLD,
+4.52%
jumped 4.5% after the company reported earnings, making it one of the S&P 500’s best performers in Friday’s trading session.

Costco Wholesale Corp. shares
COST,
+4.45%
climbed around 4.5% after reporting fiscal first-quarter earnings and revenue largely in line with expectations following the market’s close on Thursday, and announced a special dividend of $15 a share.

JD.com
JD,
+4.46%
gained 4.5% as fresh stimulus out of China helped boost shares of companies based in the world’s second-largest economy. Alibaba Group Holding Ltd.’s stock
BABA,
+2.76%
rose 2.8%.
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December 15, 2023
Microsoft stock surges toward another record close, has added about $308 billion in market cap in 11 days

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Shares of Microsoft Corp.
MSFT,
+2.49%
hiked up 2.4% afternoon trading Friday, toward its third record close in the past four sessions. The stock has now soared 12.6% over the past 11 sessions, in which is has gained 10 times, including a nine-day winning streak through Nov. 8 that was the longest such streak since the 9-day stretch that ended Nov. 19, 2019. During those 11 sessions, the stock has added $307.8 billion to its market capitalization. Microsoft is the second-largest component in the S&P 500
SPX,
+1.56%
with a market cap of $2.745 trillion, behind only Apple Inc.
AAPL,
+2.32%
at $2.891 trillion. The rally kicked off a couple days after Microsoft reported bumper quarterly results. Market research firm Bespoke Investment said Friday that Microsoft has joined Apple as the second individual company that has a larger market cap that the combined market caps of the companies that make up the Russell 2000 index
RUT,
+1.07%
of small-capitalization companies.

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November 10, 2023
U.S. stocks end higher despite climbing oil prices, Israel-Gaza war

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U.S. stocks booked back-to-back gains on Monday, despite rising oil prices and a deadly weekend assault on Israeli by Hamas that left hundreds dead. The Dow Jones Industrial Average
DJIA,
+0.59%
rose about 197 points, or 0.6%, ending near 33,604, shaking off earlier weakness, while the S&P 500 index
SPX,
+0.63%
advanced 0.6% and the Nasdaq Composite Index
COMP,
+0.39%
gained 0.4%, according to preliminary FactSet data. U.S. benchmark oil prices
CL00,
+4.34%
rose 4.3% to $86.38 a barrel as traders gauged potential implications of the Israel-Gaza war on crude supplies from the Middle East. Investors also flocked to haven assets, including gold
GC00,
+1.62%
and the U.S. dollar
DXY,
+0.03%,
while cash trading in the $25 trillion Treasury market was closed for the Columbus Day and Indigenous Peoples Day holiday. Israel on Monday seal off the Gaza Strip from food, fuel and other supplies as the conflict between Israel and Hamas intensified, according to the Associated Press.

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October 9, 2023
U.S. stocks are expensive by almost any measure. Here’s why they could keep rising anyway.

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It’s become a common refrain among those who believe the 2023 stock-market rally seems too good to last: by almost any measure one chooses, equity valuations in the U.S. are looking stretched.

While this point is generally conceded by equity analysts, it glosses over another debate of potentially greater import. What impact, if any, do so-called fundamental factors like valuation have on stock-market performance, and could we really see them put the breaks on a momentum-driven rally?

At least for now, the answer may be that valuation is taking a back seat to hopes tied to artificial-intelligence and the strength of the U.S. economy fuel optimism that could continue to push the market higher.

“Every investors should explore fundamentals, but you have periods of momentum where fundamentals take a back seat,” said Liz Young, head of investment strategy at SoFi, during a phone interview with MarketWatch.

Valuations are looking stretched

Investors buying stocks today are paying more per unit of expected earnings than at any point since April of 2022, when interest rates were much lower than were they are now. The forward price-to-earnings ratio for the S&P 500
SPX,
-0.23%
currently stands at 19.7, according to FactSet data.

That is higher than the five-year average of 18.6, and the 10-year average of 17.4, FactSet data show.

To be sure, the P/E for S&P 500 index companies masks a remarkably wide dispersion internally. An analysis by Goldman Sachs analysts found that the so called “magnificent seven” technology stocks are currently sporting a P/E of 31, while the remaining 493 companies in the index are being valued at 17.

Another closely watched valuation metric that compares the value investors could reap from owning stocks with that of owning comparatively safer Treasury bonds is looking even more extreme.

The equity risk premium (ERP) has fallen to its lowest level since mid-2002, according to data analysis conducted by MarketWatch and Sierra Investment Management CIO James St. Aubin.

JAMES ST. AUBIN

According to Aubin, the reason investors are willing to accept such a low equity risk premium instead of parking their money in short-term Treasury bills yielding more than 5% is that corporate earnings growth is expected to accelerate markedly starting in 2024.

In the past, investors have been willing to accept a low or even negative ERP if they believed they would be well-compensated for it by explosive earnings growth further out in the future. And the AI craze is bolstering expectations that some of the largest U.S. technology firms could reap windfall profits while boosting productivity across the U.S. economy.

“You’re willing to accept a low ERP, or in the case of the 1990s, even a negative ERP, if you think you’re going to have strong earnings growth,” St. Aubin said during a phone interview with MarketWatch.

Great expectations

Right now, Wall Street analysts expect to see earnings growth rise next year following several consecutive quarters of declines in late 2022 and the first half of 2023.

Although many S&P 500 firms have yet to report earnings for the quarter ended in June, the index is on track to see earnings shrink by more than 7% year-over-year, according to FactSet data. Assuming this comes to pass, it would mark the third straight quarter of year-over-year declines.

If earnings growth ticks higher during the second half of the year, analysts expect 2023 will ultimately yield earnings growth of roughly 1% for the calendar year.

But in 2024, analysts are already penciling in profit expansion of more than 12%, according to FactSet.

A lot of things need to go right for companies to meet this lofty benchmark, St. Aubin said. For example, companies will need to show that they can continue to raise prices even as inflation levels off, while the U.S. economy will need to avoid the recession that many economists still expect will eventually arrive.

Even if everything goes right and U.S. companies beat Wall Street’s expectations, an analysis of historical data suggests investors buying at today’s prices could experience smaller returns over the long term.

What does history tell us?

A regression analysis performed for MarketWatch by St. Aubin using data going back to 1991 found that when stocks are valued north of 20 on a forward price-to-earnings basis, annualized returns over the following decade tend to shrink to less than 5%.

Even if lofty valuations don’t put the breaks on the market rally, their influence could be felt by investors in other ways. For example, given the dispersion between valuations for the market leaders and everybody else, value-conscious investors might start to view small-cap stocks and other underappreciated cyclical sectors as a better buy.

“As valuations reach extremes in some of the sectors, I think it’s natural for people to move away from them. If investors aren’t going to rotate their money out of the equity market, maybe they move into other areas like small-caps that look more attractive,” Young said.

That is already starting to happen, to a degree. The Russell 2000
RUT,
-0.51%,
an index of small-cap stocks, has outperformed even the highflying Nasdaq Composite
COMP,
-0.35%
over the past month, rising 5% to the Nasdaq’s 3.6%, according to FactSet data. Although the Nasdaq is still sitting on a year-to-date gain of 36.5%, compared with the 12.7% for the Russell.

However, July was a good month for U.S. stocks, broadly speaking. Whether August portends the same is unclear. At least one prominent stock-market bull, Fundstrat’s Tom Lee, has advised clients to expect a shallow pullback in August. So far, the main U.S. equity indexes are starting the month in the red, with the S&P 500 and Nasdaq down 0.3% at 4,575 and 14,295 in recent trade.

See: Investors should brace for an August stock-market slump, Fundstrat’s Tom Lee warns

The Dow Jones Industrial Average, by comparison, was little-changed Tuesday afternoon in New York at 35,569.

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August 1, 2023
Dow snaps 4-day losing streak as investors await inflation data, earnings

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U.S. stocks finished higher on Monday as investors look ahead to inflation data and corporate earnings later in the week. The Dow Jones Industrial Average
DJIA,
+0.62%
snapped a four-day losing streak, gaining 211.37 points, or 0.6%, to 33,946.25, according to preliminary closing data from FactSet. The Nasdaq Composite
COMP,
+0.18%
lagged as megacap tech largely missed out on Monday’s gains. The tech-heavy index rose 24.77 points, or 0.2%, to 13,685.48. The S&P 500
SPX,
+0.24%
rose by 10.77 points, or 0.2%, to 4,409.72, with industrial stocks emerging as the index’s best-performing sector. Small-cap stocks also saw strong gains on Monday, with the Russell 2000
RUT,
+1.64%
rising 27.56 points, or 1.5%, to 1,892.15.

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July 10, 2023
U.S. stocks cap off losing week with third-straight drop as rate-hike worries rattle markets

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U.S. stocks finished lower on Friday, with the S&P 500 sliding for a third-straight day while all three major indexes kicked off the second half of 2023 with a weekly loss. The S&P 500
SPX,
-0.29%
fell by 12.55 points, or 0.3%, to 4,399.04, bringing its weekly loss to 1.2%, its biggest since the week before last, according to preliminary closing data from FactSet. The Nasdaq Composite
COMP,
-0.13%
shed 18.33 points, or 0.1%, to 13,660.72 while falling 0.9% on the week. The Dow Jones Industrial Average
DJIA,
-0.55%
retreated by 187.25 points, or 0.6%, to 33,735.01, falling 2% for the week. Energy stocks were a notable standout on Friday, with the S&P 500 energy sector gaining more than 2% as crude-oil prices saw their biggest weekly jump in three months. Small-cap stocks also outperformed on Friday, with the Russell 2000 rising 24.67 points, or 1.3%, to 1,866.90, although it still fell 1.1% this week. Investors digested the June jobs report from the Department of Labor on Friday, which showed that the pace of job creation decelerated last month, even as wage growth, a key inflation input, remained stubbornly elevated.

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July 7, 2023
Option demand explodes in June as investors use bullish bets to chase stock-market rally

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Trading in U.S. stock option contracts has surged in 2023 as retail and institutional traders have harnessed bullish call options to chase a runaway rally in U.S. stocks, market analysts told MarketWatch.

As of Friday, 46 million option contracts linked to U.S. equity indexes, individual stocks and exchange-traded funds have traded hands every trading session on average this month, according to an analysis by Callie Cox, a U.S. equity strategist at eToro.

This means that, barring a sudden drop-off in trading activity, June is on track to be the busiest month for option traders ever, Cox said. That is particularly notable given that the summer months are typically more placid on Wall Street.

“It’s pretty incredible for a summer month. It shows how engaged investors are after such a strong rally,” said Callie Cox, a U.S. equity strategist at eToro, during an interview with MarketWatch.

ETORO

Much of the demand has centered on call options: trading volume in these contracts has averaged 26 million a day so far, leaving June on track for the heaviest month of call buying since November 2021, Cox said.

Several overlapping trends have contributed to the surge in option demand, market analysts said.

Investors wary about a rally that recently carried the S&P 500 index to its highest level in 14 months have opted to buy short-dated calls. Often these are contracts tied to the S&P 500 or the index-tracking SPDR S&P 500 exchange-traded fund with less than 24 hours left until expiration, a class of options referred to as “0DTEs” for “zero days to expiration.”

Some traders see these cheap short-term bets as a particularly affordable, if risky, strategy for reaping gains as the market marches higher, according to market analysts and portfolio managers who spoke with MarketWatch.

And when stocks pull back, investors often change their strategy and instead of buying calls, opt to take advantage by buying or selling put options.

While a call represents a bet that a given index, stock or currency will rise, a put represents the opposite.

In addition to betting on calls tied to popular equity indexes and exchange-traded funds like the S&P 500 or the Invesco QQQ Trust Series 1 ETF
QQQ,
-0.99%,
investors are also scooping up bullish options tied to Nvidia Corp. and other market leaders, hoping to maximize any returns from the artificial intelligence boom.

The Wall Street Journal reported earlier this week that trading in call options tied to shares of Nvidia Corp.
NVDA,
-1.90%
and two other chip stocks, Advanced Micro Devices
AMD,
-0.62%
and Intel Corp.,
INTC,
+0.89%
has surged fivefold since the beginning of the year, citing data from Cboe Global Markets, owner of the world’s largest options exchange.

But demand for calls has expanded beyond megacap technology names into areas of the market that have trailed since the start of the year, including small-cap stocks and others, which have rallied in June.

The Russell 2000
RUT,
-1.44%,
an index that tracks small-cap stocks traded in the U.S., is up nearly 5% year-to-date. As of the end of May, it was marginally negative for the year, options experts said.

“With mega cap technology leading the indexes higher, investors started to play catch-up by trying to buy the second-tier and heavily shorted companies,” said Alon Rosin, head of equity derivatives at Oppenheimer, in emailed commentary shared with MarketWatch.

This means that investors’ rush to try to keep up with the market hasn’t only benefited hot AI-stocks.

Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, made a similar observation in a recent note to clients where she pointed out that call buying has surged for both companies expected to benefit from the AI boom, as well as stocks in an RBC basket of companies that are threatened by it — stocks like Robert Half International
RHI,
-0.54%,
Chegg Inc.
CHGG,
-4.00%
and Yext Inc.
YEXT,
-2.74%,
she said.

Silverman said heavy call buying in this group is indicative of the market’s “extreme call exuberance.”

Call buying has helped send popular indicators of positioning like the put-call ratio and skew, which measures the cost of downside protection via puts vs. demand for upside exposure via calls, to their lowest levels of the year earlier this month.

“People are reaching for upside via calls, and you’re seeing skew falling due to the fact that everybody has been buying calls,” said Mark Callahan, head of trading and a portfolio manager at Aptus Capital Advisors, during a phone interview with MarketWatch.

Callahan manages several active exchange-traded funds that require heavy option trading.

U.S. stocks have marched higher this year, with the S&P 500 rising for five straight weeks through June 16, its longest streak of weekly gains since November 2021. The Nasdaq Composite
COMP,
-1.01%
has seen even stronger performance, and its eight-week win streak has been heralded as the tech-heavy index’s longest rally since 2019, according to FactSet data.

The S&P 500 has risen more than 13% so far this year, while the Nasdaq has gained more than 30%. Both have erased much of their losses from 2022, which was the worst year for stocks since 2008. Last week, both the S&P 500 and Nasdaq hit their highest levels since April 2022.

However, there are some signs that the torrid rally might be in the midst of a pullback as the S&P 500, Nasdaq and Dow Jones Industrial Average
DJIA,
-0.65%
are all on track to finish the week lower on Friday.

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June 23, 2023
How a hawkish Fed could kill a baby bull-market rally in U.S. stocks

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It is the notion that the Federal Reserve could deliver a hawkish jolt to markets even if it refrains from raising rates when its two-day policy meeting ends on Wednesday.

There are concerns that such an outcome could spark a turnaround in U.S. stocks, especially if an uncomfortably strong reading on May inflation — due this coming Tuesday just as the Fed’s policy meeting is slated to begin — pushes the central bank toward something even more extreme, like delivering a rate increase on Wednesday despite intimating that it plans to abstain.

The May consumer-price index is forecast to rise 4.0% for the year, down from a rise of 4.9%, while the core index, excluding food and energy prices, is seen easing to a rise of 5.3% from 5.5%.

On the other hand, signs that the economy has weakened and inflation has continued to fade would help the Fed to justify skipping a rate increase in June — as several senior officials have suggested it will — while signaling that a potential hike at its following meeting in July could be the final increase for the cycle.

“Softening U.S. data should support calls that a June skip could eventually turn into a July pause. Next week, most of the data is expected to remain weak or little changed: retail sales could be flat m/m, the Fed regional surveys should remain in negative territory, and consumer sentiment will waver,” said Craig Erlam, senior market analyst at OANDA, in emailed commentary.

See: The Fed’s crystal ball on inflation appears off the mark again. Here’s comes another fix.

Wednesday’s meeting comes at a critical time for the market. U.S. stocks have powered ahead for more than six months, with the S&P 500
SPX,
+0.11%
having risen more than 20% off its Oct. 12 closing low, according to FactSet. Just this past week, the index exited bear-market territory for the first time in a year.

The index is up 12% so far in 2023, reversing some of its 19.4% decline from 2022, its biggest calendar-year drop since 2008, according to Dow Jones Market Data.

So far this year, highflying tech stocks have helped to paper over weakness in other areas of the market. This has started to change over the past two weeks, as small-cap and value-stocks have lurched suddenly higher, but there are fears that the Fed could hurt the most interest-rate sensitive technology names if Chairman Jerome Powell hints at rates rising higher than investors presently anticipate.

The so-called “Megacap eight” stocks — a group that includes both classes of Alphabet Inc. stock
GOOG,
+0.16%

GOOGL,
+0.07%,
Microsoft Corp.
MSFT,
+0.47%,
Tesla Inc.
TSLA,
+4.06%,
Microsoft Corp.
MSFT,
+0.47%,
Netflix Inc.
NFLX,
+2.60%,
Nvidia Corp.
NVDA,
+0.68%,
Meta Platforms Inc.
META,
+0.14%
— have driven nearly all of the S&P 500’s gains this year, according to Ed Yardeni, president of Yardeni Research, who included his analysis in a note to clients.

But since the beginning of June, the Russell 2000
RUT,
-0.80%,
a gauge of small-cap stocks in the U.S., has risen more than 6.6%, according to FactSet data. The Russell 1000 Value Index
RLV,
-0.15%
has also gained nearly 3.7% in that time. During this period, both have outperformed the tech-heavy Nasdaq Composite
COMP,
+0.16%,
although the Nasdaq remains the market leader, having risen 26.7% since Jan. 1.

Concerns about the Fed’s plans intensified this week after the Bank of Canada delivered a surprise interest-rate hike, ending a four-month pause. The BOC’s decision followed a similar move by the Reserve Bank of Australia, and partly as a result, U.S. Treasury yields rose and tech-heavy stocks tumbled, with the Nasdaq logging its biggest drop since April 25, according to FactSet.

While small-caps held up amid the chaos, the reaction stoked fears that something similar might be in store for markets when the Fed delivers its latest decision on interest rates Wednesday.

Consequences of a ‘hawkish pause’

Stocks could be in for more turbulence if the Fed signals it plans to follow the BOC and RBA with a hawkish surprise of its own. And it wouldn’t necessarily need to hike rates to pull this off, market strategists said.

Emerging signs of complacency in the market could complicate its reaction. That the Cboe Volatility Index has fallen back below 15
VIX,
+1.32%
for the first time since before the arrival of COVID-19 is one such sign that investors aren’t worried enough about a potential selloff, said Miller Tabak + Co.’s Chief Market Strategist Matt Maley.

Another analyst likened the potential fallout from a hawkish Fed to the bad old days of 2022.

“If the Fed signals that rates will be going up again, the market playbook could read more like 2022 than what we have seen so far in 2023,” said Will Rhind, the founder and CEO of GraniteShares, during a phone interview with MarketWatch.

Perhaps the biggest wild card is Tuesday’s inflation report. If the numbers come in hot, Powell and his peers could face pressure to hike rates without priming the market first.

For this reason, Rhind believes investors are underestimating the likelihood of a hike next week, even as Fed funds futures currently see a roughly 70% probability that the central bank will stand pat, according to the CME’s FedWatch tool.

And Rhind isn’t the only one. Leslie Falconio, chief investment officer at UBS Global Wealth Management, says the Tuesday inflation report could be a make-or-break moment for markets, summing up fears expressed elsewhere on Wall Street in a recent note to clients.

“We believe another rate increase is on the table, and that the CPI release on 13 June, a day before the Fed decision, will be decisive. In our view, another hike won’t have a material impact on the pace of economic growth,” Falconio said.

What should investors watch out for?

Assuming the Fed does forego a hike in June, there are a few key tells that investors should watch for to determine whether a “hawkish pause” is under way.

Perhaps the most important will be how the Fed handles changes to its closely watched “dot plot.” A modestly higher median dot would send an unmistakable signal to the market that the Fed will continue with its campaign of tightening monetary policy, perhaps to the detriment of the market, said Patrick Saner, head of macro strategy at the Swiss Re Institute.

“If the Fed skips but wanted to avoid the impression of the hiking cycle being done, it would need to include a revision of the dot plot. They could justify that with a more resilient GDP forecast and a higher inflation outlook. So I think it is the dots and then the statement that will be in focus,” Saner said during a phone interview with MarketWatch.

Beyond that, whatever the Fed does or says will likely be viewed through the lens of economic data that is due out next week. In addition to the Tuesday inflation report, a report on May retail sales is due out Thursday, and a on consumer sentiment from the University of Michigan will land on Friday. All these data points could influence investors’ impressions of the state of the U.S. economy, and their expectations for how the Fed will behave as a result.

See also: Puzzled by the ebb and flow of recession worries? Then the MarketWatch weekly recession worry gauge is for you.

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June 11, 2023
A stock-market milestone: Apple is now worth more than the entire Russell 2000

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The market capitalization of Apple Inc. has surpassed that of the entire Russell 2000 for two weeks, the longest stretch on record, according to Bloomberg data.

Apple’s market capitalization, which measures how much the company is worth based on the value of all its outstanding stock, surpassed that of the Russell 2000
RUT,
+1.19%
on April 27 and has held higher through Monday. The only other time that occurred was Sept. 1, 2020, when Apple’s valuation passed that of the small-cap index for only a day.

Apple’s premium over this group of small-cap stocks continued to widen over the past two weeks as the consumer-technology giant reported earnings that surpassed Wall Street analysts’ expectations.

With a market capitalization of roughly $2.7 trillion, Apple is now worth roughly $100 billion more than the combined value of all 2,000 stocks in the Russell 2000, according to Bloomberg data shared with MarketWatch.

To be sure, the gap narrowed somewhat on Monday as Apple shares declined by 0.4% to $171.80, while the Russell 2000 gained 1.3% to trade at 1,763.

A team of stock-market analysts from Bespoke Investment Group illustrated the trend in a chart shared on Twitter Monday.

U.S. equity benchmarks have powered higher in 2023, but some say the strength in popular indexs like the S&P 500 and Nasdaq Composite has masked weakness in other corners of the market.

Both the S&P 500, which has risen more than 7% year-to-date, and the Nasdaq Composite, which has risen nearly 18%, owe the bulk of their gains to a handful of megacap technology stocks including Apple, Microsoft Corp.
MSFT,
+0.16%,
Alphabet Inc.
GOOG,
-0.81%
and Nvidia Corp.
NVDA,
+2.16%

The top 10 stocks in the S&P 500 hold a 29% weight in the index, and have been responsible for around 70% of its year-to-date performance gains, according to a MarketWatch report from last week.

See: The S&P 500 is top-heavy with tech. Here’s what that says about future stock-market returns.

The Russell 2000, meanwhile, is essentially unchanged since the start of 2023. Apple, by comparison, has risen more than 32% since Jan. 1, according to FactSet data. The relative weakness in small-caps has inspired discussion about whether this might be a buying opportunity, as market strategists told Barron’s.

See: Small-Cap Stocks Have Been Crushed. 3 With Big Potential.

Small-caps have struggled against a plethora of headwinds since the start of 2023. Shrinking corporate earnings, a string of regional-bank failures and signs of a looming recession have taken a heavy toll. Facing so much uncertainty, equity investors have sought safety in shares of megacap technology names this year following a punishing selloff in 2022.

“It is pretty incredible that one company could overtake an entire universe of small-cap stocks in terms of size,” said Callie Cox, U.S. equity strategist at eToro, during a phone interview with MarketWatch. “To me, it really speaks to how beaten down small-caps are.”

When Apple reported earnings for the quarter ended in March last week, the company’s management revealed a surprise growth in its iPhone business, which helped to overcoming a shortfall in Mac revenue. The company also promised investors billions more in dividends and stock repurchases, which helped to boost the stock price. Apple’s shares traded higher in response.

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May 15, 2023
Small-Cap Stocks Look Ready to Rally. Take a Look at These Two.

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Small-cap stocks have gotten hit hard recently. They look ready to take off again, and a few names stand out as particularly promising.

As of midday on Monday, the

Russell 2000 index of companies with smaller market capitalizations had dropped about 4% from its closing level on March 8, before the parent company of Silicon Valley Bank disclosed a shake-up of its balance sheet that raised concerns about its survival. That, of course, triggered the bank runs that rattled the banking system last month.

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April 3, 2023
Dow tumbles over 400 points in final hour of trade as investors await monthly employment report
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U.S. stocks extended losses in the final hour of trade on Thursday, while awaiting Friday’s February employment data that could help decide how large an interest rate hike the Federal Reserve will impose at its next meeting in two weeks.

Financial sector stocks were particularly hard hit along with cryptocurrencies after Silvergate Capital Corp., collapsed overnight amid growing scrutiny in Washington. Other financial stocks fell, dragged down by SVB Financial Group, which fell by a record amount.
How are stocks trading

The S&P 500
SPX,
-1.85%
dropped 56 points, or 1.4%, to 3,936

Dow Jones Industrial Average
DJIA,
-1.66%
was off 412 points, or 1.3%, to 32,387

Nasdaq Composite
COMP,
-2.05%
declined by 174 points, or 1.5%, to 11,399

Both the S&P 500 and Nasdaq finished higher on Wednesday, with only the Dow finishing in the red, while all three indexes remained on track for weekly losses. A weekly drop for the S&P 500 would mark its fourth such pullback in five weeks.

What’s driving markets

U.S. stocks trimmed earlier gains and extended losses on Thursday afternoon after trading modestly higher after the open when the latest weekly jobless claims data showed an unexpectedly large uptick in the number of Americans filing for unemployment benefits.

The number of Americans who applied for unemployment benefits in early March jumped to a 10-week high of 211,000, the highest level since Christmas. That’s higher than the 195,000 new applicants that economists polled by the Wall Street Journal had anticipated.

Economists said the data suggest that the labor market might be starting to slow, which is seen as a necessary prerequisite for driving inflation back to the Fed’s 2% target.

“The labor market might just be on the cusp of an inflection point,” said Peter Boockvar, chief investment officer of Bleakley Financial Group, in emailed commentary.

Investors are now looking ahead to Friday’s closely watched February jobs report from the Department of Labor. Economists polled by the Wall Street Journal expect 225,000 jobs were created last month after 517,000 new jobs were created in January, a number that was much higher than economists had anticipated.

“If we do get the expected 200,000, or really anything between say 180,000 and 240,000, this would be a return to the prior trend and would signal that last month was indeed a one-off,” said Brad McMillan, chief investment officer of Commonwealth Financial Network, in emailed comments.

“That would be perceived as a positive by the Fed and markets, suggesting that inflation may start moderating again but is still high enough to allow for continued economic growth.”

See: Wall Street sees smaller 225,000 increase in U.S. jobs in February. A much larger gain might spur stiffer Fed rate hike.

The Russell 2000
RUT,
-2.75%,
the small-cap index, is on pace to close below its 50-day moving average for the first time since January 9, 2023, according to Dow Jones Market Data.

Regional bank stocks underperformed on Thursday. Shares of Silicon Valley Bank parent company SVB Financial Group
SIVB,
-60.41%
plummeted more than 61% after the company disclosed large losses from securities sales and a stock offering meant to provide a boost to its balance sheet. SVB is on pace to book the biggest one-day selloff since the dotcom boom, while its trading was halted for volatility multiple times, according to Dow Jones Market Data.

Signature Bank
SBNY,
-12.18%
shares dropped 11.2%undefined

The KBW Bank Index
BKX,
-7.70%
of 24 leading banks slumped 7.1%, on pace for its worst day since June 26, 2020, according to Dow Jones Market Data. SPDR S&P Bank ETF
KBE,
-7.30%
was down 6.5%.

See: SVB Financial’s stock suffers biggest drop in 25 years after large losses on securities sales, equity offering

Treasury yields fell with the yield on the 2-year note BX:TMUBMUSD02Yslipped to 4.885% from 5.064% on Wednesday.

Stocks suffered earlier in the week after Powell said during testimony on Capitol Hill that rates would likely need to rise even further than market participants had expected. However, the main indexes saw some relief after the Fed chief clarified that policymakers hadn’t yet decided on the size of the next rate hike.

Investors have already digested several reports on the labor market this week, including a report on the number of job openings, which showed that the number of Americans quitting their jobs had fallen below 4 million in January for the first time in 19 months.

“The big picture is that the labor market is easing, but it’s still tighter than it was before the pandemic,” said Sonu Varghese, a global macro strategist at Carson Group.

See: Bad economic data won’t be good for stocks, but good data will be even worse, this JPMorgan technical strategist says

Companies in focus

Uber Technologies Inc.
UBER,
-4.94%
shares dropped 4.4% on Thursday after Bloomberg reported on Wednesday that the ride-hailing food and package delivery company was considering a spinoff of its struggling Uber Freight business.

Silvergate Capital Corp.
SI,
-41.96%
shares slumped 32.2% after the La Jolla. Calif-based lender said it would wind down operations and liquidate its crypto-friendly lender Silvergate Bank. Silvergate shares could hit a record low on Thursday if those losses hold through the regular trading session, according to Dow Jones Market Data.

Credit Suisse Group AG’s U.S-listed shares
CS,
-4.66%
fell 4% after the Swiss bank said publication of its annual report for 2022 would be delayed due to a late call from the Securities and Exchange Commission, which questioned its 2019 and 2020 cash-flow statements.

General Motors Co.
GM,
-4.88%
slipped 4.1% after the automaker announced a voluntary buyout program that’s expected to lead to an employee separation charge of $1.5 billion.

— Jamie Chisholm contributed to this article
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March 9, 2023
Why Don’t We Have a Cure for Alzheimer’s?

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In November of 1901, a young German psychiatrist and neuroanatomist, Alois Alzheimer, found what appeared to be misfolded proteins forming sticky clumps, or plaques, between the neurons in the brain tissue of a patient who had died from dementia. Inside the neurons he found threadlike twists, called neurofibrillary tangles, of another protein. Eventually these plaques and tangles came to define the disease named after him: Alzheimer’s disease.

By the mid 1980s, these strange proteins had been identified as beta-amyloid proteins, and by the 1990s it was widely accepted that an excess of these proteins caused the formation of the plaques, which in turn caused the disease. The tangles, which turned out to be malformed strands of a protein called tau, were thought to be a result of the amyloid plaques. For the past 30 years, the bulk of research on Alzheimer’s, and most of the efforts to find a cure, have been based on the amyloid hypothesis.

However, after decades of research based on this hypothesis, drug trials have mostly struck out. No drug tested has produced meaningful improvement in the symptoms of the disease. Even drugs that reduce amyloid levels in the brain haven’t done what really matters: improve the lives of people with Alzheimer’s disease.

In January of this year, a new Alzheimer’s drug, lecanemab, was approved by the FDA even after the deaths of several trial participants raised questions about the drug’s safety. Safety issues aside, lecanemab is far from a cure. It did not stop the progression of the disease, and it reduced cognitive decline by only a small amount. “It’s a small step in the right direction,” says Donald Weaver, MD, PhD, clinical neurologist and Alzheimer’s researcher at the University of Toronto, “not a big stride.”

Are We in a Rut?

These disappointing results have led many researchers to ask if the amyloid hypothesis needs rethinking. Marissa Natelson Love, MD, is a neurology researcher at the Heersink School of Medicine at the University of Alabama at Birmingham. Natelson Love has focused her research on anti-amyloid therapies based on the amyloid hypothesis and is recruiting patients for further studies on lecanemab. Still, she says, “Every time we have a meeting, someone asks, ‘Are we on the wrong track?’” Perhaps, as Weaver once put it, Alzheimer’s research is in an “intellectual rut.”

There’s a reason science sometimes gets in these ruts. Science is a slow, accretive process that builds upon work — often decades of work — that came before.

Researchers complete PhDs on a particular topic, then go on to be postdocs in the lab of an established scientist in the same area. Soon there’s an entire body of researchers with years of training and experience in one approach to a given problem, explains Michael Strevens, PhD, philosopher of science at New York University. “There’s a protocol, what you might call a recipe book, for doing the science. Whereas with a new, untested hypothesis, no one has yet written the recipe book.” This isn’t laziness, but momentum. Like a giant ocean liner, research can’t turn on a dime. When it comes to Alzheimer’s, the momentum is mostly behind the amyloid hypothesis. The roles of other processes in the course of the disease, such as inflammation, prior infections, or autoimmune illness, have gotten short shrift.

Still, we shouldn’t throw the baby out with the bathwater. The problem may not be with the amyloid hypothesis, but with the specific drugs being tested. Maybe researchers just haven’t found the right drug. Or maybe these are the right drugs and they’re just being given at the wrong time; it could be that in order to be successful, anti-amyloid treatments need to start long before symptoms appear.

Another possibility is that the selection of trial participants has not been ideal. Until the past decade or so, Alzheimer’s couldn’t be definitively diagnosed until after death. “If we go back and look at the autopsies from previous Alzheimer’s disease studies,” says Natelson Love, “not everyone in the study actually had Alzheimer’s.” Not only might that explain why a particular trial was unsuccessful, but it could also have a downstream effect on future research. If researchers were unknowingly testing a potential Alzheimer’s treatment on patients who didn’t have Alzheimer’s, that data would be flawed — and later research that drew on it could be flawed, too.

New techniques make it possible to diagnose Alzheimer’s before death. Imaging tests like MRI can rule out other reasons for memory loss; specialized PET scans can detect beta-amyloid plaques and tau proteins. Cerebrospinal fluid can now be tested for biomarkers of amyloid and tau, and though not yet widely available, some new blood tests can detect the presence of amyloid. While these techniques are not enough to diagnose the illness alone, they are making it much easier to confirm it in living patients.

Traffic Jams in the Brain

New approaches to studying amyloid plaques might also change the trajectory of Alzheimer’s research. Rather than just trying to rid the brain of plaques and tangles, researchers are now investigating the biological pathways that created them in the first place. As Scott Small, MD, director of the Alzheimer’s Disease Research Center at Columbia University, put it, “One of the reasons there’s been such frustration is because we haven’t yet fully understood what’s fundamentally broken in Alzheimer’s, what’s fundamentally wrong. If you don’t know what’s fundamentally broken, you can’t fix it.”

Though Small says he has great respect for the amyloid hypothesis, he agrees that clearing plaques, while beneficial, results in only “subtle slowing of cognitive decline.” If you want to have a meaningful impact on the illness, he says, you need to get to the actual source of the pathology by addressing the cellular biology of the disease. He and his colleagues are pursuing that approach, looking for the source of the problem at the cellular level and trying to discover what is happening inside neurons to create the problems between neurons.

Small and others are seeking the source of the problem in endosomes, organelles inside cells that regulate the movement of proteins. Proteins on their way out of the endosomes get blocked, creating what Small calls “traffic jams,” eventually leading to the buildup of amyloid and tau proteins and thus to Alzheimer’s. They’re working on therapies that would unjam endosomes.

Meanwhile, a variety of other approaches to the problem are gaining traction. Weaver’s lab in Toronto is working on the hypothesis that Alzheimer’s disease is an autoimmune disorder in the brain. The hypothesis is that amyloid is not an abnormal protein, but a normal component of the brain’s immune system, produced in response to bacterial infections. The problem, as with all autoimmune illnesses, is that something goes wrong with the immune system, causing it to attack the body’s own tissues; in this case, the amyloid confuses healthy brain cells with infectious bacteria and attacks brain cells instead of or along with the bacteria. The result, of course, is Alzheimer’s disease. Because the drugs used to treat autoimmune illness in other parts of the body do not have a therapeutic effect in the brain, Weaver and colleagues are researching drugs that target the immune pathways specifically in the brain.

Other researchers are looking into possible connections between infections and the inflammation associated with Alzheimer’s. Kristen Funk, PhD, a neuroimmunologist at the University of North Carolina, Charlotte, studies how the body’s inflammatory response to viral infections, such as herpes simplex and viral encephalitis, affects cognition and might be linked to the development of Alzheimer’s.

Some evidence suggests that Alzheimer’s could be a metabolic disorder, much like type 2 diabetes. In fact, some researchers have called Alzheimer’s “diabetes of the brain” or “type 3 diabetes.” Insulin resistance in the brain can lead to inflammation and oxidative stress, and eventually to amyloid plaques and Alzheimer’s. Bolstering this theory are findings that some diabetes drugs may reduce the risk of Alzheimer’s.

Alzheimer’s takes a long time to develop. The damage to the brain that eventually results in the disease can begin 20 or even 30 years before memory loss or other symptoms. In a way, that’s a cause for hope: if we could only figure out how to stop it or slow it down, we’d have so much time to do it. Epidemiological studies, studies that look at who gets Alzheimer’s and when, offer some hints about prevention. Those studies suggest that although the end result is amyloid plaques in the brain, the disease could actually be caused by a number of factors at once.

While genetics certainly plays a role, some of those risk factors are modifiable: obesity, diabetes, cardiovascular disease, high cholesterol, high blood pressure, hearing loss, and depression are some known ones.

As more evidence suggests that modifying those risk factors can prevent — or at least reduce the risk — of Alzheimer’s, many researchers are looking at what they call a multimodal approach to prevention. Lifestyle interventions, like an improved diet and more exercise, reduce the risk of cardiovascular disease and diabetes. Existing medications that control blood pressure, cholesterol, and blood sugar, for example, become a key part of this approach to prevention. Something as simple as fitting a patient with hearing aids or addressing their loneliness and isolation might be effective as well.

The beauty of these interventions is that they’re mostly low risk. Treatments for the risk factors for Alzheimer’s have already been in constant use for years. They’re likely to be relatively inexpensive and are typically covered by Medicare and other insurance plans. Lecanemab, on the other hand, is expected to cost more than $25,000 per year.

“Who can afford that?” asks Weaver. “Is it going to be restricted to wealthy people in wealthy countries? Ultimately, I hope that somebody comes up with an agent which is cost-effective to produce, cost-effective to distribute, and therefore may actually have a global impact on this disease.”

Most researchers agree that the final answer will likely involve a combination of approaches. “I think, just like in cancer, [Alzheimer’s treatment] is eventually going to be a cocktail that will bolster people’s resilience to the breakdown of the nerve cells, as well as remove some of the things triggering it,” says Love.

Any real hope for a cure for Alzheimer’s likely rests not on any one hypothesis, but with the willingness of scientists to question themselves, each other, and their prior assumptions. That doesn’t mean the years spent with a laser focus on amyloid have been wasted. But researchers do agree that it’s time to look more closely not only at the amyloid paradigm, but also further afield, in the hope of finally making progress against this devastating illness.

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February 13, 2023
Asian shares rise in thin holiday trading, with U.S., European markets closed

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BANGKOK (AP) — Shares rose Monday in Asia in thin post-Christmas holiday trading, with markets in Hong Kong, Sydney and several other places closed.

Tokyo’s Nikkei 225 index
NIK,
+0.65%
gained 0.6% to 26,393.32 and the Kospi
180721,
+0.15%
in Seoul added 0.2% to 2,318.54. The Shanghai Composite index
SHCOMP,
+0.65%
rose 0.5% to 3,061.93 and the SET
SET,
+0.47%
in Bangkok added 0.6%.

Bank of Japan Gov. Haruhiko Kuroda indicated in a widely watched speech Monday that the central bank does not intend to alter its longstanding policy of monetary easing to cope with pressures from inflation on the world’s third-largest economy.

Last week, markets were jolted by a slight adjustment in the target range for the yield of long-term Japanese government bonds, viewing it as a sign the Bank of Japan might finally unwind its massive support for the economy through ultra-low interest rates and purchases of bonds and other assets.

A widening gap between interest rates in Japan and other countries has pulled the Japanese yen sharply lower against the U.S. dollar and other currencies and accentuated the impact of higher costs for many imported products and commodities.

But the BOJ has kept its key lending rate at minus 0.1%, cautious over risks of recession.

Kuroda told the Keidanren, the country’s most powerful business group, that with economies facing likely downward pressure, and with Japan’s economy not fully recovered from the impacts of the pandemic, the BOJ “deems it necessary to conduct monetary easing and thereby firmly support the economy. …”

On Friday, the S&P 500
SPX,
+0.59%
reversed a 0.7% loss to close 0.6% higher, at 3,844.82. With one week left of trading in 2022, the benchmark index is down 19.3% for the year. The Dow Jones Industrial Average
DJIA,
+0.53%
rose 0.5% to 33,203.93, while the tech-heavy Nasdaq
COMP,
+0.21%
edged 0.2% higher, to 10,497.86.

Small company stocks also rose. The Russell 2000 index
RUT,
+0.39%
picked up 0.4% to 1,760.93.

Mixed economic news weighed on stocks early on, but the indexes rebounded by late afternoon amid relatively light trading ahead of the long holiday weekend. U.S. and European markets will be closed Monday.

Markets are in a tricky situation where relatively solid consumer spending and a strong employment market reduce the risk of a recession but also raise the threat of higher interest rates from the Federal Reserve as it presses its campaign to crush inflation.

The government reported Friday that a key measure of inflation is continuing to slow, though the inflation gauge in the consumer spending report was still far higher than anyone wants to see. Also, growth in consumer spending weakened last month by more than expected, but incomes were a bit stronger than expected.

Last week’s reports were the last big U.S. economic updates of the year. Investors will soon turn their focus to the next round of corporate earnings.

The Fed has said it will keep raising interest rates to tame inflation, even though the pace of price increases has continued to ease. The Fed’s key overnight rate is at its highest level in 15 years, after beginning the year at a record low of roughly zero.

The key lending rate, the federal funds rate, stands at a range of 4.25% to 4.5%, and Fed policymakers have forecast that the rate will reach a range of 5% to 5.25% by the end of 2023.

Given the persistence of high inflation, “many are starting to believe the main story is that there will be no scope for Fed cuts in the year ahead and that central banks will maintain these relatively high rates until underlying inflation is truly cracked — and that process will take time,” Stephen Innes of SPI Asset Management said in a commentary.

The Fed’s forecast doesn’t call for a rate cut before 2024, and the higher rates have raised concerns the economy could stall and slip into a recession in 2023. High rates have also been weighing heavily on prices for stocks and other investments.

In currency dealings, the U.S. dollar
DXY,
-0.10%
slipped to 132.62 Japanese yen from 132.82 yen late Friday. The euro rose to $1.0629 from $1.0614.

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December 26, 2022
Dow falls 550 points, S&P 500 breaks below 4,000 as stocks head for worst day in nearly a month

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U.S. stocks are on track for their worst daily pullback in nearly a month on Monday as the S&P 500 traded below 4,000. Equity prices have been rattled by stronger-than-expected economic data, which market strategists say could inspire the Federal Reserve to hike interest-rates more aggressively. The S&P 500
SPX,
-1.79%
fell 82 points, or 2%, to 3,988. The Dow Jones Industrial Average
DJIA,
-1.40%
fell 540 points, or 1.6%, to 33,889. The Nasdaq Composite
COMP,
-1.93%
fell 254 points, or 2.2%, to 11,206. All three indexes were on track for their worst day since at least Nov. 9, according to FactSet data. Meanwhile the Russell 2000
RUT,
-2.78%
was down 55 points, or 2.9%, to 1,837, on track for its biggest drop since Nov. 2.

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December 5, 2022