Stock prices hit a new high for the year, ending the summer swoon
After several twists and turns this year, stock investors are in a festive mood. The S&P 500 set a new annual record Friday, a day after November posted its best month of 2023, in a rally that quickly erased the benchmark index’s steep decline over the summer.
The reversal came as investors cheered signals that the Federal Reserve has finished raising rates, the main tool in the central bank’s attempt to slow inflation. Those high interest rates have hurt corporate valuations because they raise costs for consumers and businesses and make investments outside the stock market more attractive.
Federal Reserve Chairman Jerome H. Powell appeared to reinforce investor optimism on Friday, suggesting the economy continues to cool as expected.
“We are getting what we wanted to get, we can now proceed with caution,” Mr Powell said at an event.
With a rise of 0.6 percent on Friday, the S&P 500 surpassed the previous record high for the year, which was reached in late July. The index has risen more than 10 percent compared to the low point at the end of October. This week marked the fifth straight weekly gain for the index, the longest winning streak since June.
Investors are also encouraged that the rally was broad-based. The rise was driven by the big technology companies that dominate the index, but was also supported by a rise of more than 80 percent of the stocks in the index in the past month.
Overall, the S&P 500 is up nearly 20 percent this year, surprising many analysts who predicted in early 2023 that the index would continue its struggles from 2022, when it fell about 20 percent. The November rally leaves the index just 4 percent below its all-time high, which many believe is the bar that needs to be crossed to confirm a new bull market.
As inflation has continued to ease, weaknesses in the economy have given the Fed pause as officials try to slow rising prices without plunging the country into a severe downturn. Fed officials kept rates steady at their meeting last month, allowing the rate hikes to date to fully feed into the economy.
Investors have welcomed the central bank’s caution after fears mounted over the summer that the resilience of the economy – which was growing at a rapid pace of 5.2 percent – would deteriorate. in the three months up to and including September – would prompt the Fed to raise rates even further and keep them high for a long time.
Ten-year government bond yields, one of the world’s key interest rates, have fallen nearly 0.8 percentage points since their peak in October to around 4.2 percent, a huge move in that market. That decline has lowered financing costs that track the 10-year interest rate mortgage ratesand helped push the shares higher.
The decline reversed some of the rise in Treasury yields that had weighed on investors over the summer, pulling the S&P 500 off its previous high for the year in late July.
On Friday, the S&P 500’s rally coincided with a sharp decline in two-year Treasury yields, which are sensitive to changing investor interest rate expectations.
But some analysts and investors have warned that the S&P 500’s rise is not representative of the precarious position in which many companies across the country find themselves. Even if the Fed refrains from raising rates further, they say, a prolonged period of keeping rates at their current elevated levels could still cause pain for corporate America.
The Russell 2000 index of smaller companies in the United States, which lack the size of the S&P 500 behemoths and tend to feel the effects of interest rate shifts and economic swings more acutely, ultimately remains roughly 9 percent below its level. of July, and up only 4 percent for the year.