Dow ends higher after third session of gains, as bond yields pull back

By Frances Yue and William Watts

S&P 500 on doorstep of record territory set two years ago

All three indexes closed higher on Monday as tech stocks were lifted by a pullback in Treasury yields.

What happened

The Dow DJIA gained 216.90 points or 0.6% to end at 37,683.01, according to Dow Jones Market DataThe S&P 500 SPX rose 66.30 points or 1.4% to finish at 4,763.54, less than 0.7% from its record close on Jan. 3, 2022.The Nasdaq Composite COMP ended up 319.70 points or 2.2% to close at 14,843.77

On Friday, the Dow, S&P 500 and the Nasdaq Composite snapped a streak of nine straight weekly gains.

What drove markets

Stocks rose on Monday as treasury yields pulled back, with the rate on the 10-year note BX:TMUBMUSD10Y sliding back below 4% after a New York Fed survey found U.S. one-year inflation expectations were at their lowest since January 2021.

Still, stocks' performance so far this year doesn't bode well for the market in 2024.

The S&P 500's movement over the first five trading days of the year often provides a good indicator of how it will perform over the rest of the year, according to historical data.

Historically, the large-cap U.S. equity benchmark has seen its performance in the first five trading days and over the full year correlate in the same direction 69% of the time, based on Dow Jones Market Data going back to 1950.

The S&P 500 was down 0.1% in the first five trading days of the year, according to FactSet data.

Read: NY Fed: It's been years since consumers felt this good about where inflation could go next

Last Friday's stronger-than-expected reading on the U.S. labor market coupled with a weaker-than-forecast survey of the services sector encapsulated the uncertainty over the trajectory of Fed policy. Inflation data due this week, including the December reading of the consumer-price index on Thursday and the producer-price index on Friday will also be closely watched.

"This week's inflation data could determine whether last week's pullback is a blip on the radar or something larger," Chris Larkin, managing director for trading and investing at E-Trade from Morgan Stanley, said in an email.

"The S&P 500 started the year with three straight down days for just the ninth time since 1991, and jobs data showed the labor market is still percolating," he said.

To be sure, the S&P 500 also has been knocking on the door of record territory, ending Monday less than 0.7% away from its prior closing record of 4,796.56, set on Jan. 3, 2022, according to Dow Jones Market Data.

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Speaking on Saturday, Dallas Fed President Lorie Logan said it was too early to take rate increases off the table as inflation remained above the 2% target and "a premature easing of financial conditions could allow demand to pick back up."

See: Why stock-market investors will remain at mercy of shifting rate-cut expectations after wobbly start to 2024

On Thursday, the December consumer prices index will be published, where economists expect headline annual inflation to be 3.3%, up from November's 3.1%.

Indeed, recent comments from the central bank's officials suggest they are trying to discourage the market from getting too hopeful that borrowing costs will be swiftly reduced this year.

Monetary policy will have some competition for investors' attention on Friday when the fourth-quarter 2023 corporate earnings season kicks off, with big banks such as JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC) leading the charge. Aggregate earnings for the S&P 500 are expected to rise 1.3%, according to FactSet.

Earnings Watch: This earnings season will be the first big test of the market's year-end rally. The forecasts don't look great.

Companies in focus

Alaska Airlines said that it had canceled 170 flights - more than one-fifth of its schedule - by midafternoon Sunday on the West Coast because of the Boeing 737 groundings. Shares of Alaska Air Group Inc. ALK were off 0.2% and shares of fuselage maker Spirit AeroSystems Holdings SPR were down 11%. Harpoon Therapeutics' stock HARP rose 112% to close at $22.36 after Merck & Co. MRK said it would buy the cancer-treatement developer, paying $23 in cash for each Harpoon share, representing a hefty premium over Harpoon's $10.55 closing price on Friday.

- Jamie Chisholm contributed.

-Frances Yue -William Watts

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01-08-24 1642ET

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