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A relatively light day of trading on Wall Street ended Thursday with a broad rally for equities as investors welcomed new unemployment benefits showing that the job market remains strong.
The S&P 500 rose 1.7%, with approximately 95% of stocks within the benchmark index closing higher. The gains more than offset the index’s losses over the past two days, the latest swing in what was a volatile week of short holidays for stocks.
The Dow Jones Industrial Average rose 1% and the Nasdaq composite gained 2.6%.
Technology stocks, which are down 29% this year, drove much of the rally. Apple and Microsoft each rose 2.8%.
Tesla rose 8.1% as it continued to recover from steep losses on Tuesday after reports it had temporarily suspended production at a factory in Shanghai. The stock is still down almost 66% for the year.
Investors hoped for a rally from Santa Claus. That’s Wall Street’s term for when stocks rise in the last five trading days of December and the first two of January. Even a late rally was unlikely to change the broader market’s trajectory for the month.
Every major index is heading for a December loss that will end a dismal year. While companies in the S&P 500 posted record profits this year, investors in the benchmark index will see a loss of about 20% in 2022, which would be the worst year since 2008.
Still, going back to World War II, history suggests the market may do better next year, said Sam Stovall, chief investment strategist at CFRA.
If you look at bad years for the market, history offers some encouragement because the market is up 14% on average the following year and has increased in price more than 80% of the time, Stovall said.
The S&P 500 rose 66.06 points to 3,849.28. The Dow Jones added 345.09 points to 33,220.80. The Nasdaq rose 264.80 points to close at 10,478.09.
Small company stocks also posted solid gains. The Russell 2000 Index rose 44.23 points or 2.6% to 1,766.25.
Government bond yields were mixed. The yield on the 10-year Treasury fell to 3.83% from 3.89% at the end of Wednesday.
Markets in Europe closed higher, while markets in Asia fell.
Investors were focused on the Federal Reserve’s continued battle against stubbornly hot inflation. The central bank has been raising interest rates in an effort to curb borrowing and spending and cool inflation, but the strategy threatens to go too far and push the economy into recession. That has placed an even greater focus on a wide range of data for Wall Street as it tries to determine whether inflation is cooling down and how different parts of the economy are doing.
The latest update from the US shows that the number of people claiming unemployment benefits increased only slightly last week. The labor market has been one of the stronger parts of the economy. That’s normally good news and has helped create a bulwark against a recession as other parts of the economy slow down. It has also complicated the Fed’s fight against inflation and means the central bank will likely have to remain aggressive, increasing the risk that its policies will trigger a recession.
The Fed has already raised its key interest rate seven times this year and is expected to continue raising rates in 2023. will reach a range of 5% to 5.25% by the end of 2023. Their forecast does not call for a rate cut before 2024.
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