A recession isn't expected next year, says Carson's Ryan Detrick

Stocks were little changed on Friday as Wall Street looked to end a winning year on a high note and possibly a new milestone.

The S&P 500 traded along the flatline, along with the Dow Jones Industrial Average. The Nasdaq Composite edged down 0.2%

“Momentum continues to remain favorable heading into year end,” said Mona Mahajan, senior investment strategist at Edward Jones. “It’s been quite a phenomenal run over the last eight weeks or so for the S&P 500, so I’m not surprised to see a little bit more moderation in pace the last few days.”

The S&P 500 entered the final trading day of 2023 less than 0.5% from a new record high, which could serve as an exclamation point on a rally that has gained strength in the final months of the year.

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The S&P 500 is on the cusp of a new record high.

The S&P 500 is up 24.6% in 2023, with the Dow rising 13.8%. The Nasdaq Composite has led the way with a gain of 44.2%, putting it on pace for its biggest annual increase since 2003.

All the major averages are also on track to notch their ninth consecutive winning weeks, with the S&P up 0.7%. That would mark its longest stretch of weekly gains since 2004. The Dow and Nasdaq are up 1% and 0.7%, respectively, and on pace to clinch their longest weekly winning streaks since 2019.

The story for much of 2023 was the excitement around artificial intelligence fueling big gains for the “Magnificent 7” stocks like Nvidia and Microsoft. The enthusiasm bolstered the indexes even as the average stock struggled amid rising interest rates and fueled the outperformance of the tech-heavy Nasdaq.

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The Nasdaq Composite has surged more than 40% in 2023.

But with the Federal Reserve signaling it is likely done with rate hikes, and could even cut rates multiple times next year, the 10-year Treasury yield dove from above 5% in late October to less than 3.9% on Thursday. Investors have also grown more confident in a possible “soft landing” where the U.S. economy avoids a recession.

As a result, the market rally has broadened out in the fourth quarter, with the industrial-heavy Dow already making a string of record highs this month. The small-cap Russell 2000 is up almost 14% in December, on track for its best month since November 2020.

This expansion in market breadth could continue into the new year, although a period of consolidation isn’t out of the question, especially as more Fed speakers weigh in on the prospect of rate cuts ahead of January’s meeting, Mahajan said.

“We wouldn’t be surprised to see some pushback on what the market is pricing in, and that could spark some bouts of volatility early in the year,” she said. “Think about using volatility to position if you haven’t been involved fully in this rally thus far.”

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