Dow scores another all-time high as S&P 500 remains just shy of record territory

Amid low trading volume, the S&P 500 notched its highest close since notching its highest-ever closing level of 4,796.56, set on Jan. 3, 2022. The index is up 5% so far in December, its best December performance since it gained 6.5% in December 2010, Dow Jones Market Data shows.

Traders will be watching closely on Friday, the final trading session of 2023, to see if the S&P 500 can finish off what has been a wild year for stocks with a record.

“We’re within [12] points [of the January 2022 closing high] here, so we’ll see if we make a run either today or tomorrow,” said JJ Kinahan, CEO of IG North America, parent company of brokerage Tastytrade, in an interview with MarketWatch. “Seems hard to believe that we wouldn’t test it before the year is out.”

Both stocks and bonds have benefited from expectations that the Federal Reserve could cut interest rates aggressively next year. Rate-cut hopes and signs that the U.S. economy is headed for a soft landing have helped drive a 24.6% advance for the S&P 500 since the start of 2023, FactSet data show.

Equity investors have also welcomed a recent sharp decline in benchmark borrowing costs, as the 10-year Treasury yield
BX:TMUBMUSD10Y
has fallen from more than 5% at its October peak to about 3.8% this week. Bond yields move inversely to prices.

Sentiment got a boost this week from strong auctions of U.S. government 2-year
BX:TMUBMUSD02Y
and 5-year bonds
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on Tuesday and Wednesday, respectively, evidence that the market is relaxed with Treasury yields at the lower levels.

But the streak of strong auctions came to an end on Thursday, when a sale of $40 billion in 7-year notes
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showed weaker demand than expected. U.S. stock indexes touched their lowest levels of the day after the results were posted at 1 p.m. Eastern time while Treasury yields ticked higher.

Looking ahead, some analysts are wondering whether investors may have jumped the gun by pricing in so many Fed interest-rate cuts next year. Some fear this could mean stocks are due for a pullback should expectations shift again.

“If global equity markets have one Achilles’ heel going into January 2024, it is the expectation that the Fed will be methodically and consistently cutting interest rates throughout the year,” said Nicholas Colas, co-founder of DataTrek Research.

As for U.S. economic data released Thursday, investors focused on a weekly jobless-claims report which showed the number of Americans applying for benefits had risen for a second-straight week. Initial jobless claims rose by 12,000, to 218,000, in the week ended Dec. 23, according to Labor Department data.

A report on the U.S. trade deficit in goods showed it had widened 0.8% to $90.3 billion in November, according to an advanced estimate from the Commerce Department.

Finally, pending home-sales data showed sales were flat in November compared with the previous month.

Companies in focus

• Apple Inc.
  AAPL,
  +0.22%
  finished marginally higher after winning a court victory that will allow it to temporarily continue selling its newest Apple Watches.

• Alibaba Holding Group
  BABA,
  +1.48%
  finished slightly lower after a U.S. court ruled it must face a lawsuit filed by an American toy maker.

• Shares of Mullen Automotive
  MULN,
  +28.36%
  traded higher on news after it delivered an order of EV cargo vans.