Stocks closed higher Wednesday, extending the Santa Claus rally for another day. The main benchmarks have been rallying in recent weeks on hopes that easing inflation will encourage the Federal Reserve to start cutting interest rates early next year – and that momentum continued today.
According to CME Group, futures traders are pricing in a 74% chance for a quarter-point rate cut at the March Fed meeting. Markets also assign a 62% probability to the federal funds rate being an entire percentage point lower in July from its current range of 5.25-5.5%.
Not everyone is taking a glass-half-full approach to interest rates, though. "The stock market is too optimistic about the quantity of rate cuts expected in 2024 and we may be borrowing some of 2024's gains now as the year-end rally continues," says Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management.
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"We expect to see three rate cuts in 2024 starting in July and not any sooner than that unless something unexpected happens in the economy that warrants lower interest rates," Landsberg adds.
Santa Claus rally is in full swing
In addition to rate-cut expectations, stocks are getting some seasonality help. Indeed, markets are right in the middle of the so-called Santa Claus rally, a period encompassing the last five trading days of December and the first two trading days in January when stocks historically do well.
"[T]hese 7 days are more likely to be higher than any other 7 days of the year, [with the S&P 500] up 79.5% of the time," writes Ryan Detrick, chief market strategist at Carson Group, on X. The data Detrick cites goes back to 1950, and shows the S&P 500 has averaged a 1.3% gain over the seven-day time frame.
At today's close, the Dow Jones Industrial Average rose 0.3% to 37,656 – a new all-time closing high – and the Nasdaq Composite gained 0.2% to 15,099. The S&P 500, meanwhile, added 0.1% to 4,781, just below its record closing high of 4,796.56 from January 3, 2022. Since its close on Thursday, December 21 – the start of this year's Santa Claus rally – the S&P 500 is up 0.8%.
Apple Watch sales ban temporarily paused
With little in the way of economic data for investors to take in Wednesday, market participants turned to single-stock news. Apple (AAPL, +0.1%), for one, snapped its four-day losing streak after a U.S. appeals court paused a temporary U.S. sales ban on the company's smartwatches until January 10.
Sales of Apple's Series 9 and Ultra 2 smartwatches have been paused since late last week following an October ruling by the U.S. International Trade Commission that found the company had violated a patent for the blood oxygen monitors included in these Apple Watch models.
Tesla stock pops on Model Y buzz
Elsewhere, Tesla (TSLA) jumped 1.9% – gaining $15.1 billion in market value along the way – after a Bloomberg News report suggested the electric vehicle (EV) maker is planning to start production on a revamped version of its mid-size Model Y SUV by the middle of next year.
Tesla has been one of the best stocks on the price charts in 2023, more than doubling for the year-to-date.
Analysts remain skeptical of Tesla's ability to keep the momentum going, though. According to S&P Global Market Intelligence, TSLA stock has a consensus Hold recommendation from the 42 analysts covering it. Plus, the average 12-month price target of $237.10 is below its current share price.
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