U.S. Stocks Rebound Amid Holiday Week, Eyes on Federal Reserve Rate Cuts and Incoming Policies

U.S. stocks bounced back on Friday as investors wrapped up a holiday-shortened week, marking the start of the new year with optimism about additional Federal Reserve rate cuts and regulatory loosening under the incoming administration.

A broad rally pushed all three major U.S. stock indexes higher, with tech giants like Tesla and Nvidia leading the charge, propelling the tech-heavy Nasdaq to a strong close. However, despite Friday’s gains, all three indexes posted modest declines for the week. The S&P 500 recorded its third weekly loss in four.

The rebound came after a multi-session selloff that capped what was a strong year for equities, fueled by the continued rise of artificial intelligence technology and the Fed’s first policy rate cuts in three and a half years, contributing to double-digit market gains in 2024.

“After the late-in-the-year weakness, and a very oversold market, we finally saw some buyers step in,” said Ryan Detrick, chief market strategist at Carson Group. “Obviously, the past week-and-a-half has been disappointing for the bulls, but volume has been light, and there hasn’t been a lot of news. Let’s just remember, starting next week, on Monday, that’s when a lot of the big money managers come back to the desk. We’ll see if this bullish trend can continue.”

On the economic front, the Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) surprised on the upside, gaining 0.9 points to 49.3, its highest level since March and inching closer to expansion territory.

While recent economic data has been robust, some market watchers are questioning the need for further Fed rate cuts, fearing they could reignite inflationary pressures.

Richmond Fed President Thomas Barkin expressed a positive outlook for the U.S. economy in 2025, despite uncertainties about the potential impact of trade and other policies under the incoming Trump administration. The newly elected Congress convened for its first session on Friday, with President-elect Donald Trump set to take office on January 20.

Trump’s proposed policies, which include corporate tax cuts, deregulation, and tariffs, could boost corporate profits and energize the economy but may also place upward pressure on inflation.

In stock-specific news, the Dow Jones Industrial Average rose 339.86 points, or 0.80%, to 42,732.13. The S&P 500 gained 73.92 points, or 1.26%, to 5,942.47, and the Nasdaq Composite added 340.88 points, or 1.77%, to 19,621.68. All 11 major sectors of the S&P 500 closed higher, with consumer discretionary stocks seeing the largest gains after Thursday’s losses.

Despite the rally, analysts expect S&P 500 earnings to grow by 9.6% year-on-year for the fourth quarter, according to LSEG data.

In corporate news, U.S. President Joe Biden blocked the proposed sale of U.S. Steel to Japan’s Nippon Steel for $14.9 billion, citing national security concerns. U.S. Steel’s shares dropped 6.5%. Microsoft shares rose 1.1% after the company announced an $80 billion investment in AI-enabled data centers for fiscal 2025.

Alcohol stocks faced some pressure after U.S. Surgeon General Vivek Murthy recommended that alcoholic drinks carry cancer warning labels. Molson Coors and Brown-Forman saw declines of 3.4% and 2.5%, respectively.

On the NYSE, advancing issues outnumbered decliners by a 3.03-to-1 ratio, with 86 new highs and 89 new lows. The Nasdaq saw 3,179 advancing stocks and 1,181 decliners, with advancing issues outpacing decliners by a 2.69-to-1 ratio.

Volume on U.S. exchanges totaled 14.09 billion shares, compared with the 14.91 billion average for the last 20 trading days.

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