U.S. stocks finished higher Thursday, with the Dow Jones Industrial Average scoring a back-to-back record close.

Optimism about the Federal Reserve’s interest-rate-cut projections has been fueling a powerful rally, while benchmark borrowing rates dropped.

How stocks did

  • The Dow Jones Industrial Average
    DJIA
    advanced 158.11 points, or 0.43%, to end at 37,248.35, after touching a record intraday high of 37,287.50.

  • The S&P 500
    SPX
    rose 12.46 points, or 0.26%, to finish at 4,719.55.

  • The Nasdaq Composite
    COMP
    gained 27.59 points, or 0.19%, to end at 14,761.56.

  • All three indexes closed higher for a sixth-straight session.

On Wednesday, the Dow rose 1.4% to a record close of 37,090, the S&P 500 increased 1.4% and the Nasdaq gained 1.4%.

What drove markets

U.S. stocks added to a powerful rally sparked a day ago, when the Fed suggested interest rates have likely peaked in this cycle and penciled in 75 basis points of rate cuts in 2024.

“We’ve certainly rallied quite a bit in the last few days,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management, noting that a pause in the rally wouldn’t be a surprise.

While big equity gains were seen Wednesday after the Fed decision, the S&P 500, Dow and Nasdaq Composite each have advanced for six-straight sessions, leaving the S&P 500 less than 2% off its last record close nearly two years ago.

A major catalyst for stocks has been a retreating 10-year Treasury yield
BX:TMUBMUSD10Y,
which fell another 10.3 basis points to 3.929% on Thursday, its lowest level since July, after surging to 5% in October.

“I’m not at all concerned about the Santa Clause rally going away,” Pavlik said.

The rally also appeared to be expanding beyond a small group of big-tech stocks. The Russell 2000 index
RUT
of small-cap stocks gained 2.72% Thursday, after outperforming the big three equity indexes a day before.

Read: Russell 2000 on pace for best month versus S&P 500 in nearly 3 years

The S&P 500’s information-technology and communications-services sectors ended lower Thursday, while its energy component outperformed with a 2.94% gain, lifted by U.S. crude oil
CL00,
+0.10%
prices climbing to $71.58 a barrel on the New York Mercantile Exchange.

Sid Vaidya, U.S. wealth chief investment strategist at TD Wealth, said the big surprise from Wednesday was that Fed Chair Jerome Powell didn’t push back as anticipated on the market’s expectations for rate cuts next year.

He also thinks optimism about rate cuts should be tempered, with the Fed indicating the first rate cut is likely to occur in the fall, while traders are expecting a pivot to cuts this spring.

“We are in between,” Vaidya said, offering a forecast for the first cut of the cycle to occur in the summer of 2024.

More global central-bank decisions arrived early Thursday, with the Bank of England and European Central Bank leaving their interest rates unchanged at 5.25% and 4%, respectively.

The ECB also signaled it would halt its last remaining bond-buying scheme — the €1.7 trillion ($1.9 trillion) Pandemic Emergency Purchase Program — earlier than expected, in mid-2024.

In U.S. economic data Thursday, initial jobless claims fell by 19,000 to 202,000 in the week ending Dec. 9, the lowest level since mid-October. Data also showed sales at U.S. retailers rose a solid 0.3% in November in a good start to the holiday-shopping season, suggesting that the economy might not be cooling off all that much.

Mortgage rates also were falling, with the 30-year fixed rate pegged below 7% for the first time since August.

Thursday’s earnings include reports from retailer Costco
COST,
-1.75%
and homebuilder Lennar
LEN,
+6.65%,
which will release results after the closing bell.

See: Dow scores its highest close in history. Here’s what that means in the big picture.

Companies in focus

Jamie Chisholm contributed.

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