U.S. stocks were giving back most of their earlier gains on Thursday afternoon, with the Dow Jones Industrial Average up less than 60 points after carving out a fresh record.

Optimism about the Federal Reserve’s interest-rate-cut projections delivered a day ago had been fueling a powerful rally.

How stocks are trading

  • The Dow Jones Industrial Average
    advanced 58 points, or 0.2%, to 37,148, after touching a record intraday high of 37,287.50.

  • The S&P 500
    edged up 2 points, or less than 0.1%, to 4,710.

  • The Nasdaq Composite
    shed 29 points, or 0.2%, to 14,704.

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’s driving markets

U.S. stocks were hitting pause on a powerful advance 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.

“Today really is about the surprise delivered by the Fed yesterday,” said Sid Vaidya, U.S. wealth chief investment strategist at TD Wealth, adding that Fed Chair Jerome Powell didn’t push back, as expected, on market expectations of rate cuts next year.

Vaidya said it wasn’t a surprise that equities rallied and Treasury yields were falling significantly. But he also thinks optimism should be tempered, with the Fed indicating the first rate 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 2024.

The benchmark 10-year Treasury yield
continued to drop, falling another 9 basis points to 3.93% on Thursday, after surging to 5% in October. But the rally that lifted the Dow to fresh records appeared to be taking a breather.

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

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.

The latest batch of U.S. economic data released Thursday was benign, showing 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 the economy might not be cooling off all that much.

The rally still appeared to be broadening out, even though Apple
the world’s biggest company by market capitalization, turned negative after its shares traded at intraday highs.

Yet the Russell 200 index
of small-cap stocks was up 2.5% 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

“Technically, the snapback in multiple sectors in the last month is certainly a positive heading into 2024,” said Mark Newton, head of technical strategy at Fundstrat. But he also argued “the risk/reward scenario certainly hasn’t improved” after a roughly 13% rally in the last seven weeks.

Thursday’s earnings calendar includes reports from retailer Costco

and homebuilder Lennar
which will release results after the closing bell.

Companies in focus

Jamie Chisholm contributed.

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