Stocks Finish Higher in Quiet Session


U.S. stocks rose Tuesday in thin preholiday trading, with investors remaining focused on the path of the Federal Reserve’s interest-rate increases.

The S&P 500 climbed 53.64 points, or 1.4%, to 4003.58, after dropping 0.4% in the previous session. The Dow Jones Industrial Average gained 397.82 points, or 1.2%, to 34098.10, and the Nasdaq Composite added 149.90 points, or 1.4%, to 11174.41.

Many traders were away from their desks ahead of the Thanksgiving holiday. Just 18.9 billion shares in New York Stock Exchange and Nasdaq-listed stocks changed hands on Monday and Tuesday, the lowest number in any two days since the period ended Jan. 3.

Still, there is still much for investors to consider as they try to chart the market’s trajectory. Rising Covid-19 cases in China have raised concerns among money managers about growth in the world’s second-largest economy just weeks after the prospect of eased restrictions propelled stocks and commodities higher globally.

“The more negative tone out of China yesterday has only added to existing fears about a U.S. recession over the coming months,” said

Deutsche Bank

strategist

Jim Reid

in a note.

Traders, meanwhile, are grappling with an uncertain outlook for interest rates in the U.S. The Fed has been aggressively raising interest rates this year to tame inflation, rattling everything from stocks to bonds to home sales. In 2023, investors largely expect the Fed to pause its rate-hiking cycle to allow the economy to absorb the effects of monetary tightening.

“They will pause. They want to make sure inflation is eradicated,” said

Jay Willoughby,

chief investment officer at TIFF Investment Management, adding that falling home prices indicate that the Fed’s efforts to cool the economy are working.

The Federal Reserve’s interest rate continues to climb, reaching nearly 4% in November. But the average savings account’s interest rate is just 0.16%. Here’s how banks determine that rate—and which accounts are paying closer to the Fed’s. Illustration: Adele Morgan

Cleveland Fed President Loretta Mester said Tuesday she and her colleagues are still focused on tackling inflation. Analysts broadly expect the Fed to slow the increases to half a percentage point at its December meeting, down from a series of three-quarter-point increases.

The yield on 10-year Treasury notes edged down to 3.757% from 3.825% Monday. That decline on the yield, which moves inversely to the price of the bonds, snapped a three-day streak of gains.

This year, short-term yields have climbed faster than long-term yields—leading to what is known as an inverted yield curve—which indicates expected economic contraction.

“Investors are grappling with recessionary concerns and the yield curve remains inverted. It’s going to keep risk-appetite muted,” said Patrick Palfrey, senior equity strategist at Credit Suisse. Mr. Palfrey suggests investors hold cyclical stocks such as industrials, materials and financials.

Goldman Sachs

said in a report Tuesday that it expects the S&P 500 to finish next year at 4000, near where markets closed Tuesday. Higher interest rates have left very few places for investors to hide. Some, however, believe next year could be a stock picker’s market.

“It’s more of a rational, fundamental approach, away from growth stocks,” said Eric Hale, founder of Trader Oasis, a trading platform for retail traders specializing in stocks and options. He estimates the S&P 500 will trade around 4200 at the end of this year.

The oil market extended a recent bout of volatility. Prices rose Tuesday after Saudi energy minister Prince Abdulaziz bin Salman said a production cut by OPEC and its allies is possible. Brent-crude futures edged up 91 cents, or 1%, to $88.36 a barrel.

In currency markets, the WSJ Dollar Index declined 0.5%.

Traders are weighing an uncertain outlook for interest rates in the U.S.



Photo:

justin lane/Shutterstock

Among individual stocks,

Best Buy

gained $9.05, or 13%, to $79.88 and was the best performer in the S&P 500. The electronics retailer reported quarterly results that beat expectations and raised its outlook.

Meanwhile,

Dollar Tree

fell $12.87, or 7.8%, to $152.37 and was the worst performer in the index. The discount retailer said it expects earnings to come in toward the lower half of its previous guidance for the year, citing elevated costs and a shift in consumer purchases.

Overseas markets were mixed. The Stoxx Europe 600 rose 0.7%. Japan’s Nikkei added 0.6%, and stocks in Shanghai nudged up 0.1%, while Hong Kong’s Hang Seng dropped 1.3%.

Write to Joe Wallace at joe.wallace@wsj.com and Hardika Singh at hardika.singh@wsj.com

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