U.S. stocks struggle to resume climb as Dow edges higher after notching 5th straight record close

What’s driving markets

U.S. stocks were edging higher on Wednesday with the S&P 500 less than 1% shy of the all-time closing high of 4796.56 it recorded in January 2022, while the Dow industrials and Nasdaq were struggling to extend their nine consecutive daily gains.

The large-cap benchmark S&P 500 has jumped 24.3% this year, partly powered by hopes that the U.S. economy has not been too badly damaged by the Federal Reserve’s ratcheting up of interest rates to cool inflation.

The latest leg of the rally reflects hopes that with inflation back down to 3.1%, the central bank will begin quickly trimming borrowing costs next year. Not even a concerted effort by Fed officials to counter the market’s rate-cut optimism has damped the ardor of traders.

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The current bullishness is perhaps also reflective of seasonal trends, with optimism about a festive bounce underpinning stocks. The “Santa Claus Rally” period stretches from the last five trading days of the year to the first two trading days of the new year, according to the Stock Trader’s Almanac.

Since 1950, the S&P 500 has averaged a gain of 1.32% and closed higher 78.1% of the time over that period, according to Dow Jones Market Data.

With stocks on a tear since the end of October amid what’s been described as an “everything rally,” “valuations are once again a bit stretched so the market is taking a bit of a breather” on Wednesday, said Eric Sterner, chief investment officer at Apollon Wealth Management in Mount Pleasant, S.C., which manages about $7 billion in assets.

“The tailwinds, so to speak, include the Fed’s more dovish pivot that caught the market off guard,” Sterner said via phone on Wednesday. “And on the other side, some of the headwinds are that the markets have been on an incredible run and have pushed valuations very high historically speaking. We can debate whether there’s going to be a hard or soft landing, but we can all agree that the economy is slowing down and consumer spending is expected to slightly decrease in coming quarters.”

In U.S. economic data, existing-home sales rose 0.8% in November to 3.82 million, the National Association of Realtors said on Wednesday. Sales of previously owned homes unexpectedly inched up last month, snapping a five-month slump as easing mortgage rates encouraged some U.S. home buyers.

Meanwhile, the U.S. consumer confidence index rose to a five-month high of 110 in December, up from a downwardly revised 101 in the previous month, the Conference Board said Wednesday.

“The consumer is feeling pretty well as rates move lower, employers add to their payroll, and income expectations improve,” said Jeffrey Roach, chief economist at LPL Financial. “So far, investors have a green light as they merge into the new year.”

That said, investors will continue seeking guidance from more economic data due later this week that may provide greater clarity on the Fed’s interest-rate path in 2024. A revision of the third-quarter GDP print is expected Thursday morning, followed by Friday’s personal consumption expenditures (PCE) inflation report — the Fed’s preferred inflation gauge.

Companies in focus

• Shares of Tesla Inc.
  TSLA,
  -0.39%
  held relatively steady amid reports that the automaker has decided to cut out merit-based grants from employee-compensation packages.

• Shares of Alphabet Inc.
  GOOGL,
  +2.97%
  jumped 2.8% on Wednesday following a Reuters report that said its Google unit plans to reorganize a large part of its advertising-sales unit.

• Shares of FedEx Corp.
  FDX,
  -10.97%
  slumped 11.1% after the package-delivery giant trimmed its full-year sales forecast amid continued concerns about subdued shipping demand through the peak holiday season.

• Shares of General Mills Inc. 
  GIS,
  -2.37%
   were off 2.6% after the consumer-foods company missed fiscal second-quarter revenue expectations and lowered its full-year outlook as consumers continue “stronger-than-expected value-seeking behaviors.” 

— Jamie Chisholm contributed.