Dow Jones Industrial Average edges higher amid bullish tilt and cautious optimism
- The Dow Jones climbed 100 points on a wobbly Tuesday as investors tilt bullish.
- Equity markets remain hopeful heading into the year's end.
- Looming holiday closures keep overall market momentum capped.
- US GDP accelerated in the third quarter, but consumers remain skeptical.
US stocks extended their recent rally on Tuesday, with major indexes posting a fourth consecutive day of gains as investors continued to favor artificial intelligence–related names during a holiday-shortened trading week. The advance kept the S&P 500 (SP500) within striking distance of fresh record highs, reinforcing the market’s resilient tone even in the face of stronger-than-expected economic data.
Equities recover footing as rate cut hopes persist
The S&P 500 rose about 0.3%, hovering just below the 6,900 level and near both its intraday and closing records. The Nasdaq Composite outperformed with a gain of roughly 0.4%, supported by ongoing strength in large-cap technology and AI-linked stocks. The Dow Jones Industrial Average (DJIA) also edged higher, adding about 100 points. Not all corners of the market participated, however, as small-cap stocks lagged. The Russell 2000 declined around 0.6%, reflecting investor caution toward more economically sensitive companies amid signs of robust growth.
Markets digested a delayed but closely watched economic report showing US Gross Domestic Product (GDP) growth expanded at a 4.3% annualized pace in the third quarter, significantly exceeding expectations. Growth was driven by resilient consumer spending, which accelerated from the prior quarter. The upside surprise briefly unsettled markets early in the session, as investors reassessed how quickly the Federal Reserve (Fed) might move to lower interest rates. Despite that initial hesitation, stocks recovered as traders maintained confidence that multiple rate cuts remain likely next year.
Futures markets continue to price in two Fed rate cuts by the end of next year, even as stronger growth complicates the near-term outlook. Some investors also remain focused on potential changes in Fed leadership, with expectations that a future chair could lean more dovish than current policymakers. For now, the market appears willing to look past near-term economic strength and focus on a longer-term easing cycle.
Consumers remain cautious despite upshot data
Sentiment data offered a more cautious signal. The Conference Board (CB) reported that consumer confidence fell again in December, underscoring lingering concerns about the economic outlook despite strong headline growth. Four of the five components of the index declined, leaving overall confidence well below levels seen earlier in the year and suggesting households remain uneasy about future conditions.
Elsewhere, institutional news drew attention as Citadel plans to return roughly $5 billion in profits to investors early next year. The hedge fund’s flagship Wellington strategy has posted solid gains so far this year, highlighting continued strength among large alternative asset managers.
In commodities markets, precious metals surged to fresh records. Gold futures reached a new all-time high above $4,530 an ounce, while silver climbed past $70 an ounce for the first time ever on a nominal basis. The moves reflected ongoing demand for hard assets amid expectations of future rate cuts and longer-term inflation concerns.
With US markets set to close early on Christmas Eve and remain shut on Christmas Day, investors are entering the holiday period with equities near record levels, supported by optimism around technology leadership, a resilient economy, and the prospect of easier monetary policy ahead.
Dow Jones daily chart
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
