Dow surges 520 points to post highest close in nearly 2 years, stocks log best month in more than a year

What drove markets

All three major U.S. stock benchmarks clinched their best month in at least a year, driven higher by falling U.S. bond yields, optimism about easing inflation and potential Federal Reserve rate cuts next year.

The Dow surged into the closing bell Thursday, posting its best daily percentage gain in four weeks. The equity gauge got a lift by a more than 9% gain in shares of Salesforce Inc.
CRM,
+9.36%
following a batch of strong quarterly earnings.

But weakness in other megacap technology names, including Nvidia Corp.,
NVDA,
-2.85%
Meta Platforms Inc.
META,
-1.52%
and other members of the “Magnificent Seven,” weighed on both the Nasdaq.

“I think the market is getting it wrong,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company.

Instead of the Fed orchestrating a soft economic landing as many investors now envision, Schutte expects rates to stay high until a mild recession unfolds. “Eventually, the Fed rate hikes are going to bite, but I don’t think they will remove them until they see them bite, meaning slower economic growth and job losses.”

He also thinks investors underestimate the coming toll of higher rates on U.S. companies and households, as time erodes the buffer of a historic pandemic refinancing spree.

Related: Bond market reflects jitters about wall of maturing office REIT debt

In a positive sign, investors on Thursday received yet another report showing inflation continued to ease last month. The core personal-consumption-expenditures price index, the Fed’s preferred gauge of inflation, was up 3.5% year-over-year in October, compared with 3.7% in September.

MarketWatch Live: Inflation has cooled further, Fed-favored PCE gauge shows

Yet stocks already have moved significantly higher in a short amount of time. “The markets have moved sideways in the past week or so,” said Matt Palazzolo, senior investment strategist, Bernstein Private Wealth Management, in a phone call.

His team expects the S&P 500 to produce a mid-single-digit return in the year ahead.

Meanwhile, jobless claims continued to tick higher, offering more evidence that the U.S. labor market is cooling. Initial jobless claims rose 7,000 to 218,000, in the week ending Nov. 25, the Labor Department said Thursday. Economists polled by The Wall Street Journal had estimated new claims would rise 11,000 to 220,000. 

Investors also digested comments from New York Fed President John Williams, who said the central bank has raised interest rates to, or near, their peak.

Oil futures on Thursday closed lower after the Organization of the Petroleum Exporting Countries and it allies, known as OPEC+, reached an agreement to reduce monthly production by an additional 1 million barrels per day, according to media reports.

News of the agreement initially boosted prices, but they quickly erased all of their gains before turning negative.

See: Why oil prices are dropping despite OPEC+ pledge to make additional production cuts early next year

U.S.-traded West Texas Intermediate crude
CL.1,
-0.32%
futures closed 1.5% lower at $76.72 a barrel. The S&P 500’s energy sector was up 0.6%, shaking off earlier weakness, according to FactSet.

The S&P 500’s worst-performing sectors on Thursday were communications services, information technology and consumer discretionary, all weighed down by weakness in the “Mag 7″ names.

Companies in focus

• Snowflake Inc.’s
  SNOW,
  +7.05%
  stock rose 7% Thursday after the company delivered upbeat results and an impressive forecast.

• Pure Storage
  PSTG,
  -12.18%
  shares were 12.2% lower after the enterprise provider of storage services issued disappointing revenue guidance.

• Tesla Inc.
  TSLA,
  -1.66%
  shares were 1.8% lower, with the company hosting its Cybertruck delivery event on Thursday in Austin, Texas.

See: Elon Musk lashes out at advertisers who boycott X: ‘Go f— yourself’

—Jamie Chisholm contributed reporting to this article