Dow hits pause on record-setting rally, S&P 500 and Nasdaq struggle for direction

How stocks are trading

• The Dow Jones Industrial Average
  DJIA
  advanced 63 points, or 0.2%, to 37,156, after touching a record intraday high of 37,287.50.

• The S&P 500
  SPX
  edged up 4 points, or 0.1%, to 4,711.

• The Nasdaq Composite
  COMP
  shed 18 points, or 0.1%, to 14,711.

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.

“We’ve certainly rallied quite a bit in the last few days,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. “A pause is probably appropriate.”

Pavlik also said there appeared to be early signs of a rotation in asset allocations taking hold as the 10-year Treasury rate continued to drop.

The benchmark 10-year Treasury yield
BX:TMUBMUSD10Y
fell another 9 basis points to 3.93% on Thursday, after surging to 5% in October.

The Russell 200 index
RUT
of small-cap stocks was up 2% 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

“I’m not at all concerned about the Santa Clause rally is going away,” Pavlik said.

Sid Vaidya, U.S. wealth chief investment strategist at TD Wealth, said the big surprise from Wednesday was that Fed Chair Jerome Powell didn’t push back, as expected, on market expectations of rate cuts next year.

But he also thinks optimism should be tempered, with the Fed indicating the first rate cut 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 of 2024.

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.

Thursday’s earnings calendar includes reports from retailer Costco
COST,
-1.41%
and homebuilder Lennar
LEN,
+6.52%,
which will release results after the closing bell.

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

Companies in focus

• Walt Disney Co. shares
  DIS,
  +0.83%
  were up Thursday after activist investor Nelson Peltz said he intends to nominate himself and former Walt Disney Co. Chief Financial Officer Jay Rasulo to Disney’s board.

• Intel Corp. shares
  INTC,
  +1.58%
  climbed after the company announced new PC chips Thursday that can power many computers built for artificial-intelligence tasks.

• French media conglomerate Vivendi
  VIV,
  +9.96%
  said it is exploring plans to split itself into three separate listed companies, causing its share price to surge. 

• Moderna Inc.’s stock
  MRNA,
  +8.45%
  soared after the biotech company and partner Merck & Co.
  MRK,
  -0.80%
  announced positive data from a midstage trial of Moderna’s mRNA-4157 in combination with Merck’s blockbuster cancer drug Keytruda.

• Occidental Petroleum shares
  OXY,
  +2.72%
  rose after Warren Buffett’s Berkshire Hathaway increased its stake in the company.

Jamie Chisholm contributed.