Wall Street Continues Rally on Fed’s Dovish Stance and Anticipation of Key Inflation Data

The S&P 500 inched closer to its all-time closing high from January 2022, signaling a potential confirmation of a bull market since its October 2022 low.

On Tuesday, Wall Street continued its upward surge, building on momentum from the Federal Reserve’s recent shift in policy and anticipation of critical inflation data.

This positive sentiment led to broad-based gains across all three major U.S. stock indexes.

The S&P 500 inched closer to its all-time closing high from January 2022, signaling a potential confirmation of a bull market since its October 2022 low.

Additionally, the Dow Jones achieved another all-time closing high.

Small-cap stocks, represented by the Russell 2000, have experienced a robust December, with a 1.9% increase on the day and a remarkable 11.7% surge throughout the month.

According to Ross Mayfield, an investment strategy analyst at Baird, this impressive performance can be attributed to the Federal Reserve’s recent actions and the absence of significant downside pressure in the current calendar year.

Mayfield emphasized that while psychological markers like bull and bear markets are important, the expansion of breadth, sustained momentum, and economic confirmation of these trends take precedence.

However, FedEx faced an 8% drop in extended trading after reducing its full-year revenue forecast due to stiff competition with United Parcel Service (UPS) during a lackluster holiday season.

UPS also experienced a 2.6% decline.

Following the Federal Reserve’s policy meeting last week, the Federal Open Market Committee indicated the end of its tightening cycle and the possibility of future rate cuts.

Atlanta Fed President Raphael Bostic, however, expressed that there was “no urgency” to initiate rate cuts given the economy’s strength and the gradual reduction in inflation toward the central bank’s 2% annual target.

Despite this, financial markets are anticipating a 67.5% likelihood of a 25 basis-point rate cut as early as March, according to CME’s FedWatch tool.

Mayfield observed that the market appears to be outpacing the Fed’s cautious approach, creating a narrative that the central bank struggles to change.

Economically, the Commerce Department reported an 18% surge in groundbreaking for new single-family homes in November, reaching a 1.5-year high.

This news boosted the S&P 1500 Homebuilding and Philadelphia SE Housing indexes by 1.6% and 1.2%, respectively.

As the week progresses, investors are eagerly awaiting the Commerce Department’s final third-quarter GDP report and the Personal Consumption Expenditures (PCE) report on income growth, consumer spending, and inflation.

The Dow Jones Industrial Average rose by 251.9 points (0.68%) to 37,557.92, the S&P 500 gained 27.81 points (0.59%) to 4,768.37, and the Nasdaq Composite added 98.03 points (0.66%) to 15,003.22.

All 11 major sectors of the S&P 500 ended the session in positive territory, with energy and communication services leading the gains.

Boeing climbed 1.2% after German airline Lufthansa ordered 40 737-8 MAX jets, while Kenvue rose 2.2% following a favorable U.S. court ruling in a lawsuit concerning the company’s drug Tylenol.

Amgen also advanced 1.1% after receiving an “outperform” rating from BMO.

In summary, Wall Street’s rally continued, driven by the Federal Reserve’s recent policy shift and optimism regarding inflation data, resulting in widespread gains across major indexes and sectors.