U.S. stocks slip following S&P 500’s fresh 2023 high, as bond yields rise

U.S. stocks took a breather Monday, finishing slightly lower amid some tempering of enthusiasm over the potential for Federal Reserve interest-rate cuts after the Dow Jones Industrial Average and S&P 500 ended last week at 2023 highs.

How did stocks trade?

  • The Dow
    fell 41.06 points, or 0.1%, to close at 36,204.44, snapping a four-day winning streak.

  • The S&P 500
    declined 24.85 points, or 0.5%, to finish at 4,569.78.

  • The Nasdaq Composite
    ended at 14,185.49, down 119.54 points, or 0.8%.

  • Small-cap stocks defied the weak tone, with the Russell 2000
    rising 1% to close at 1,882.02, outperforming the broader market and rising for a fourth straight day. Small caps have lagged well behind their large-cap peers in 2024, up just 6.9% versus a 18.8% year-to-date rise for the S&P 500 and a 35.5% advance for the Nasdaq.

On Friday, the Dow, S&P 500 and Nasdaq Composite both logged a fifth straight weekly gain. The Dow closed at its highest since Jan. 12, 2022, while the S&P 500 posted its highest finish since March 30, 2022.

What drove markets?

Stocks rallied over the past five weeks as expectations for Fed rate cuts next year pushed Treasury yields lower.

Need to Know: Stock-market top could come as soon as this week, says award-winning technical strategist

But yields moved higher on Monday, with the rate on the 10-year note
up 6.1 basis points to 4.286%. Yields tumbled Friday even after Federal Reserve Chair Jerome Powell pushed back on rate-cut speculation, saying the central bank was prepared to hike again if needed.

Read: Dow near record high as traders call bluff on ‘higher-for-longer’ Fed

It’s a busy week for economic data, but it’s the U.S. jobs report on Friday “which will likely end the week with either a bang or a whimper as the expectations for just steady growth in the U.S. for the month ahead seem at ends with the pricing of both bonds and stocks,” Bob Savage, head of markets strategy and insights at BNY Mellon, said in a note.

“Both markets can’t rally together for long without something breaking,” he said.

Earlier last week, encouraging inflation data and comments from Fed governor Christopher Waller helped turbocharge rate-cut expectations. A fresh weak reading on manufacturing from the Institute for Supply Management on Friday also gave those hopes a boost.

Still, the technical backdrop for the S&P 500 is “encouraging” for a breakout above 4,600, although it may take a few attempts due to the overbought conditions, according to Adam Turnquist, chief technical strategist for LPL Financial.

See: Stellar stock-market rally builds on ‘soft landing’ hopes. Why the economy isn’t out of the woods.

Hopes for a Fed rate cut triggered a fresh intraday high for gold prices

on Sunday, though the metal was paring back on Monday. Bitcoin

shot above $42,000 briefly to a level not seen since April 2022.

Companies in focus

  • Shares of ride-hailing app Uber Technologies Inc.

    rose 2.2% after S&P Dow Jones Indices on Friday said it would be moved into the S&P 500 on Dec. 18. But shares of building-materials manufacturer Builders FirstSource Inc.

    and electronics manufacturer Jabil Inc.

    failed to rally off of their inclusion.

  • Alaska Air Group Inc.

    announced a deal Sunday to buy Hawaiian Airlines for about $1.9 billion. Under the terms of the deal, Alaska Air will pay $18 a share in cash, while taking on about $900 million in Hawaiian’s net debt. The price is equal to a 270% premium over Hawaiian’s closing price Friday at $4.86. Hawaiian Holdings Inc. shares

    soared 192.6% to $14.22, while Alaska Air shares tumbled 14.2%.

Opinion: Uber is officially an adult company, in large part due to CEO Dara Khosrowshahi 

— Barbara Kollmeyer contributed.

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