U.S. stocks advance as S&P 500 trades within a few points of record territory

What’s driving markets

U.S. stocks opened higher as the penultimate trading session of 2023 got underway, with all three major U.S. indexes at notable new highs. Amid low volume, investors everywhere were watching to see if the S&P 500 would eke out a new record closing high before the end of the year.

The index is trading within about 20 points of its record close of 4,796.56, set on Jan. 3, 2022.

“We’re within [12] points [of the January 2022 closing high] here, so we’ll see if we make a run either today or tomorrow,” said JJ Kinahan,  CEO of IG North America, parent company of brokerage Tastytrade, in an interview with MarketWatch. “Seems hard to believe that we wouldn’t test it before the year is out.”

Hopes for a soft landing for the U.S. economy and forecasts for a raft of interest-rate cuts by the Federal Reserve next year have helped to push stocks higher since late October, bringing the S&P 500’s year-to-date advance to just shy of 25%, according to FactSet data.

Equity investors have also welcomed a recent sharp decline in benchmark borrowing costs, as the 10-year Treasury yield
BX:TMUBMUSD10Y
has fallen from more than 5% at its October peak to about 3.8% this week.

Sentiment got a boost this week from strong auctions of U.S. government 2-year
BX:TMUBMUSD02Y
and 5-year bonds
BX:TMUBMUSD05Y
on Tuesday and Wednesday, respectively, evidence that the market is relaxed with Treasury yields at the lower levels.

But the streak of strong auctions came to an end on Thursday, when a sale of $40 billion in 7-year notes
BX:TMUBMUSD07Y
showed weaker demand than expected. U.S. stock indexes touched their lowest levels of the day after the results were posted at 1 p.m. Eastern time while Treasury yields ticked higher.

Looking ahead, some analysts are wondering whether investors may have jumped the gun by pricing in so many Fed interest-rate cuts next year. Some fear this could mean stocks are due for a pullback should expectations shift again.

“If global equity markets have one Achilles’ heel going into January 2024, it is the expectation that the Fed will be methodically and consistently cutting interest rates throughout the year,” said Nicholas Colas, co-founder of DataTrek Research.

As for U.S. economic data released Thursday, investors focused on a weekly jobless-claims report which showed the number of Americans applying for benefits had risen for a second-straight week. Initial jobless claims rose by 12,000, to 218,000, in the week ended Dec. 23, according to Labor Department data.

A report on the U.S. trade deficit in goods showed it had widened 0.8% to $90.3 billion in November, according to an advanced estimate from the Commerce Department.

Finally, pending home-sales data showed sales were flat in November compared to the previous month.

Companies in focus

• Mullen Automotive Inc.
  MULN,
  +27.00%
  stock rallied as the electric-vehicle maker said it invoiced Randy Marion Automotive Group $1.7 million for delivering another 50 cargo vans.

• Apple Inc.
  AAPL,
  +0.24%
  shares traded higher after the company scored a legal victory allowing it to, at least temporarily, continue selling its latest Apple Watch models.

• Shares of Chinese e-commerce giant Alibaba Group Holding
  BABA,
  +1.51%
  were up despite a judge in New York ruling that the company must face a lawsuit by a U.S. toymaker.