U.S. stocks recently experienced a sudden downturn after enjoying a solid year-end rally. This decline marked the end of a series of record-breaking highs for the Dow Jones Industrial Average and temporarily halted the S&P 500’s march toward an all-time closing high. Experts attribute these fluctuations to various factors.
- The Dow Jones Industrial Average ended down by 475.92 points, or 1.3%.
- The S&P 500 closed lower by 70.02 points, or 1.5%.
- The Nasdaq Composite finished down by 225.28 points, or 1.5%.
One significant factor affecting the market is the Federal Reserve’s surprising shift towards a more dovish stance, which caught many investors off guard. Conversely, the stock market has been on a remarkable upward trajectory, pushing valuations to historically high levels. While there’s debate about whether the economy will experience a hard or soft landing, it’s widely agreed that it is slowing down. Consumer spending is expected to decrease slightly in the coming quarters.
Traditionally, this time of year is associated with optimism in the stock market due to a phenomenon known as the “Santa Claus rally.” This period, which extends from the last five trading days of the year to the first two trading days of the new year, often boosts stock prices. Over the years, the S&P 500 has averaged a gain of 1.32% during this period, closing higher approximately 78.1% of the time.
In recent economic data, home sales increased by 0.8% in November, breaking a five-month slump as lower mortgage rates encouraged prospective homebuyers. Additionally, the U.S. consumer confidence index reached a five-month high of 110 in December, up from the previous month. Investors are now watching upcoming reports, including a revision of the third-quarter GDP and the Fed’s preferred inflation gauge, the personal consumption expenditures inflation report, set to be released soon.
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