WSJ: Narrow market rally is ‘potentially worrying sign’

(The Center Square) – The recent U.S. stock market rally is a “potentially worrying sign,” the Wall Street Journal reported ahead of the Federal Reserve holding its first two-day policy meeting of the year tomorrow.

The S&P 500 broke a record on Friday, propelled by a rally in technology stocks closing at 4,839.81. It was the first time the stock market index, which tracks the stock performance of the 500 largest companies listed on U.S. stock exchanges, reached a record level in two years.

All three indexes reported weekly gains last week, including the Dow Jones Industrial Average and Nasdaq.

The S&P 500’s record closing on Friday broke “a streak of more than 500 trading sessions without a new record,” the Wall Street Journal reported. “The Dow Jones Industrial Average gained 395 points, or 1.1%, to close at 37863.80, also a record. The tech-heavy Nasdaq Composite climbed 1.7%.”

All three indexes were heavily influenced by technology shares, boosted by chip makers and artificial intelligence company performances, according to several reports. In response, investors are questioning if tech sector market gains can be sustained when 10 other sectors are trading below their all-time highs by an average of 15%. None of have yet to report a high this month; overall, S&P 500 is down 0.3% starting the new year.

“A narrow rally is a potentially worrying sign to some investors and strategists. When just a handful of big stocks are responsible for most of the market’s gains, it becomes more vulnerable to a downturn if a few of those heavyweights stumble,” the Journal reports.

The Federal Reserve is scheduled to meet Tuesday for a two-day policy discussion on the state of the economy. Economists project that their announcement expected on Wednesday will indicate whether they will cut interest rates in March, MarketWatch reports. The Fed began hiking interest rates in March 2022 as inflation soared to 40-year-highs.

High interest rates impacted all sectors of the economy but last year the U.S. housing market showed signs of distress. The housing market is directly tied to economic booms and busts. Home sales dropped 19% in 2023, to the lowest level since 1995, according to the National Association of Realtors. Fewer people were able to purchase homes due to inflationary costs, high mortgage and interest rates, the association found.

“The recent, rapid three-year rise in home prices is unsustainable. If price increases continue at the current pace, the country could accelerate into haves and have-nots,” NAR Chief Economist Lawrence Yun said in a statement when announcing the 30-year low.

In the four major U.S. regions, home sales dropped in the Midwest and South, increased in the West and were unchanged in the Northeast, with all four regions experiencing year-over-year sales decreases, NAR reported.

While Federal Reserve officials are not expected to change the interest rate this week, “The stage is set for the Fed to take steps toward cutting rates in coming months. We expect the Fed to begin lowering the federal funds rate target range in March as it attempts to stick a soft landing,” Bloomberg News reports.

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