Dow climbs to fifth straight record close as rate-cut hopes underpin sentiment

What drove markets

Investors are breaking out the eggnog.

While the Dow has already been turning out record closes of late, the S&P 500 index is now less than 1% away from its own record close. The stock-market benchmark closed at a record 4,796.56 on Jan. 3, 2022.

Traders remained energized by the prospect of the Federal Reserve starting to cut interest rates by spring 2024. More evidence of a sturdy economy is also providing a tailwind.

Richmond Fed President Thomas Barkin added some more holiday cheer with remarks Tuesday morning that there’s “good progress” in the fight against inflation.

When it came to details about interest-rate cuts, Barkin said it was still too soon to say. If inflation keeps slowing like it is now, the central bank “would of course respond appropriately” by cutting interest rates, he said.

Some Fed officials in recent days pushed back against the market’s hopes for lower borrowing costs as early as March, but equity investors seem to have shrugged off those comments for now.

Read also: One of Wall Street’s biggest bears says the Fed is giving investors a good reason to be bullish in 2024

Investors also got another look at the housing market at a time when mortgage rates were already starting to turn lower.

November housing starts increased 14.8% after a revised 0.2% gain for October. That’s the best reading since May. Meanwhile, building permits fell 2.5% in November.

Since last month, there have been two bullish trading themes at play, said Callie Cox, U.S. investment analyst at eToro. It’s either the rate-cut trade powering stocks higher, or it’s the trade on the bet of a continuing strong economy.

“Today is a strong-economy trade,” Cox told MarketWatch Tuesday, noting the strong showings for stocks in materials and real estate. Barkin’s comments and the the rate-cut trade are playing into the momentum, too, but the Tuesday trading dynamic showed the strong-economy trade setting the tone, she said.

“This is the kind of rally you want to see, a rally with broad participation,” she said. “Cyclical stocks are taking the baton of leadership from more quality risk sectors, and that could power another move higher.”

But will the S&P get back to its record? The chances look good, but the timing is the question, as Cox sees it right now.

Cox sounds hopeful, as do an array of global fund managers. In Bank of America’s latest look at fund-manager sentiment, managers had their rosiest view of the stock market since January 2022 — right around the S&P 500’s record close.

Companies in focus

• Alphabet Inc. shares
  GOOG,
  -0.25%
  finished 0.7% higher Tuesday after court papers Monday showed the search giant agreed to pay $700 million to settle some of the allegations it has been stifling competition in its app store. The filings in San Francisco federal court show some of the specifics in a September deal with state attorneys general.

• FuelCell Energy Inc.shares
  FCEL,
  -4.19%
  traded 4.6% lower Tuesday after the fuel-cell energy-technology company had a revenue miss in its fiscal fourth quarter. The $22.46 million in revenue missed the FactSet consensus of $25 million.

• UBS Group AG shares
  UBS,
  -0.03%
  ended 5.2% higher Tuesday after a €1.2 billion ($1.31 billion) stake was announced by Swedish activist investor Cevian Capital, which thinks the shares should be able to double in worth. “Cevian sees significant value potential in UBS,” managing partner and co-founder Lars Förberg said in a statement.

Jamie Chisholm contributed.