Christmas may be over but Wall Street is still brimming with holiday cheer.
Investors are reaping gains from the “Santa Claus rally” that has pushed stock indexes to record highs for the past six trading days. The blue-chip Dow Jones industrial average was up 0.7 percent Thursday to close at 16,479.88, while the broader Standard & Poor’s 500-stock index rose 0.5 percent to finish at 1842.02.
Stock markets generally move higher during the holiday season, then pare the gains in the new year. But analysts said the momentum this year is particularly notable in the face of reductions to the Federal Reserve’s massive economic stimulus program, which has been credited with boosting the markets.
“Going into next year, I still believe the wind is behind the market’s back,” said Yu-Dee Chang, chief trader at Ace Investment Strategists.
The Fed announced this month that it will reduce the amount of money that it pumps into the economy starting in January. The central bank will buy $75 billion worth of Treasury bonds and mortgage-backed securities, down from $85 billion, and slowly scale its purchases down to zero through next year.
Bond yields, which move in the opposite direction of prices, have steadily risen on the news as investors exit the market ahead of the Fed. The yield on the 10-year Treasury hit 2.99 percent Thursday and closed just under the symbolic high-water mark. Interest rates on many consumer and business loans are based on 10-year yields, and analysts say the recent runup will likely be reflected in higher mortgage and other rates.
Chang cautioned that the Fed could bungle the withdrawal of its stimulus program next year. The central bank has said it will take “moderate” steps and could even slow down if the recovery weakens. But the Fed is in uncharted territory, and its strategy is unprecedented. Previous attempts to pull back its stimulus sent markets into a panic.
“I don’t think the tapering is going to be as smooth as some people are thinking,” Chang said. “It’s going to bring some uncertainty in the market.”
Still, the consensus among economists is for the recovery to strengthen in 2014, providing a solid foundation for the market’s rally and higher interest rates. Investors cheered encouraging data Thursday from the Labor Department showing the largest drop in new weekly unemployment claims in more than a year. About 338,000 people filed for jobless benefits for the first time last week, down 42,000 from the previous week and significantly lower than economists had forecast.
Although the weekly claims data can swing widely — particularly during the holidays — it seemed to bolster investors’ belief that the job market is improving. Businesses have created an average of 200,000 net jobs each month for the past four months, putting to rest fears that the federal government shutdown and debate over the national debt limit would chill hiring.
Meanwhile, an early reading of holiday sales by MasterCard Advisors showed that consumers proved resilient. The group estimated that sales between Nov. 1 and Christmas Eve rose 2.3 percent compared with last year in key categories such as apparel, electronics and jewelry. It estimated that the retail industry overall rang up 3.5 percent growth.
“The holiday shopping results are in line with expectations,” said Sarah Quinlan, senior vice president at MasterCard Advisors. “Holiday sales were a clear improvement over last year’s weaker numbers.”
Quinlan said the growth this year was notable because a late Thanksgiving meant consumers had less time to buy gifts, while a spate of bad weather kept many shoppers indoors. Some of them turned to the Internet, sending online sales up 10 percent to nearly $43 billion, according to a Thursday report from comScore.
The final tally fell short of the digital measurement firm’s forecasts. Sales were muted in the week before Christmas, held back in part by heavy discounting among retailers. Still, Kathy Grannis, a spokeswoman for the National Retail Federation, a trade group, said consumers could be on stronger footing in the new year.
“The average person is feeling a lot more confident heading into 2014,” she said.