NEW YORK (AP) — Most of Wall Street rose Thursday after the previous day's big rally on fears that multiple interest rate cuts could actually happen next year.
The S&P 500 gained 0.3%, coming within 1.6% of its all-time highs reached early last year. The Dow Jones Industrial Average rose 158 points, or 0.4%, setting a record for the second straight day, and the Nasdaq Composite rose 0.2%.
Moderna rose 9.2% after reporting encouraging data from a trial of its treatment for high-risk melanoma, used alongside Merck's Keytruda. That helped offset Adobe's 6.3% decline, resulting in a 2024 revenue forecast that fell short of analysts' expectations.
Stock markets have generally soared since October on hopes that inflation has cooled enough for the Federal Reserve to not only halt its market-worrying interest rate hikes but even consider lowering them. Those hopes grew on Wednesday after the Fed kept its key interest rate steady and said the federal funds rate is likely at or near its peak.
More importantly, the Fed has released forecasts showing that its middle official expects the key interest rate to fall more next year than previously expected. Wall Street loves lower interest rates because they can raise the price of investments and ease pressure on the economy and financial system.
Other central banks also met this week, and hopes are growing that the shift toward easier conditions for financial markets and the economy could take place on a global scale. Both the European Central Bank and the Bank of England decided on Thursday to keep their key interest rates unchanged, but each gave signals that no rate cuts are imminent.
Treasury yields in the bond market continued to fall as traders bet on a series of interest rate cuts in the US in 2024.
The yield on the 10-year Treasury note fell to 3.91% from 4.03% late Wednesday. In October it was over 5%, its highest level since 2007, and the sharp decline since then has given the stock market a big boost.
Owners of office parks, hotels and other properties that benefit from lower interest rates were among the bigger winners Thursday. Real estate stocks rose 2.6%, marking one of the biggest gains among the 11 sectors that make up the S&P 500 index, including a 7.2% rise for Boston Properties.
The banks were also strong. High interest rates have hurt the industry's players, who are a notch or two below the giant banks, and contributed to three high-profile collapses earlier this year. Lower interest rates could ease the pressure.
Zions Bancorp, Fifth Third Bancorp, Comerica and Regions Financial all rose more than 8%.
Overall, the S&P 500 rose 12.46 points to 4,719.55. The Dow rose 158.11 to 37,248.35 and the Nasdaq rose 27.59 to 14,761.56.
But the recent rally in stocks and the decline in Treasury yields appears to give confidence that the Federal Reserve is accomplishing something that not long ago was considered a long shot.
The hope is that the Fed can get its interest rate policy just right: first, by slowing the economy and putting high interest rates on investment prices enough to mitigate high inflation, and then by easing conditions at the right time to prevent the economy from slowing too much and slipping into a painful recession.
That's still not certain, as both Fed officials and cautious investors warn.
One danger is that the economy stays too hot, which would keep upward pressure on inflation and force the Fed to keep interest rates high for longer than expected.
Some reports on Thursday suggested the economy could be stronger than economists forecast. One showed that U.S. shoppers spent more at retailers in November than in October, when economists forecast a decline. Another report said fewer U.S. workers filed for unemployment benefits last week, a sign of a robust labor market.
Government bond yields briefly reversed some of their declines following the reports. However, traders continue to bet on a high probability that the Federal Reserve will cut its key interest rate by at least 1.50 percentage points next year, according to data from CME Group. That's twice as much as the median Fed official expects.
“We believe the market is pricing in too rapid a pace of cuts,” said Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.
Critics said the scale of interest rate cuts that traders expect is unlikely unless the U.S. economy falls into recession.
On overseas stock markets, indices in Europe and Asia were mixed. Japan's Nikkei 225 fell 0.7% as hopes of U.S. interest rate cuts depressed the dollar's value against the yen. This can harm Japanese exporters.
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AP business reporters Matt Ott and Elaine Kurtenbach contributed.