US close: Dow nears record high as bond yields continue to retreat

(Sharecast News) - US stocks put in decent gains on Friday with the Dow rising to its highest in nearly two years as bond yields continued to slump on the back of rising hopes that the Federal Reserve may cut interest rates earlier than expected. The Dow Jones Industrial Average gained 0.82%, the S&P 500 rose 0.59% while the Nasdaq was up 0.55%.

The Dow rose 2.4% for the week to finish at 36,245.50, its highest level in 23 months, and now sits within 1.5% of its record close of 36,799.65 set on 4 January 2022.

The 10-year US Treasury yield was down 12.2 basis points at 4.211%, its lowest since mid-September, after personal consumption expenditures data on Thursday showed that inflation had slowed more than expected in October, while consumer spending growth eased.

Fed chair Jerome Powell did his best to contain expectations on Friday, saying rate-cut chatter is too "premature" but said that monetary policy was "well into restrictive territory". However, he did say that "the full effects of our tightening have likely not yet been felt".

"Whatever additional Fed soundbites emerge over the next few weeks, the message is (or at least should be) clear: The Fed's done. They're not hiking again, barring a significant turn for the worse in the incoming inflation data," said Stephen Innes, managing partner at SPI Asset Management.

"It is time to cut rates to avoid the consequence of real rate lagged effects; the question now should be how much deeper of a cut is needed beyond the insurance cuts to avoid passively tightening real rates as inflation falls."

In other news, economic activity in the US manufacturing sector declined in November for the 13th straight month, according to the Institute for Supply Management's latest purchasing managers' index (PMI). The ISM manufacturing PMI was unchanged from October at 46.7, with figures under 50 representing a contraction in activity. The consensus forecast was for a slight improvement to 47.6.

"Demand remains soft, and production execution is slightly down compared to October as panelists' companies continue to manage outputs, material inputs and - more aggressively - labour costs," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

US construction spending ticked up 0.6% in October, according to the Census Bureau, hitting a seasonally adjusted annual rate of $2.02bn, following a downwardly revised 0.2% increase in September and beating market estimates for a reading of 0.4%.

In company news, Pfizer shares were firmly lower after disappointing results from a trial of its weight loss drug. The company said it wouldn't advance the drug into late-stage studies as a result.

Disney finished flat despite reinstating its dividend at 30 cents a share, while entertainment peer Paramount surged 10% on reports the company could bundle its streaming services with Apple.

Morgan Stanley was weighing on Alibaba after cutting its rating on the ecommerce giant to 'equal weight'.