US share markets finished higher on Tuesday, with the S&P 500 closing at a record level, as fresh economic data showed the US economy is running hotter than expected.
A wave of reports, led by stronger-than-forecast growth figures, pushed government bond yields higher and helped lift growth stocks, particularly big technology names.
The US Commerce Department said the economy grew at an annual rate of 4.3 per cent in the September quarter. That was the fastest pace since the September quarter of 2023 and well above the 3.3 per cent forecast from economists surveyed by Reuters. Solid consumer spending did most of the heavy lifting.
The figures were released late because of the 43-day US government shutdown. Many analysts had expected growth to slow in the December quarter, but the surprise strength has changed how markets see the outlook for interest rates.
Investors are now less confident the US Federal Reserve will cut rates in January. Short-term bond yields rose in response, according to CME’s FedWatch Tool.
“The bond market didn’t like this news,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.
“It seems to me that when we lose this battle, growth does well, and growth’s doing well today,” he said.
“But if you’re a food company, or you’re a chemical company, or you’re an oil and gas company, or even if you’re like a private credit company, that’s bad news. Unless interest rates go down, it’s bad.”
Tech leads the market higher
The Dow Jones Industrial Average rose 79.73 points, or 0.16 per cent, to 48,442.41. The S&P 500 gained 31.30 points, or 0.46 per cent, to 6,909.79. The Nasdaq Composite climbed 133.02 points, or 0.57 per cent, to 23,561.84.
Growth stocks clearly led the way. The S&P 500 growth index rose 0.8 per cent, while value stocks barely moved.
Artificial intelligence-linked shares added to recent gains after last week’s sell-off, which was driven by worries that valuations had run too far ahead of profits and that heavy spending by AI companies could weigh on earnings.
Nvidia jumped 3.0 per cent, making it the single biggest driver of gains in the S&P 500. Amazon, Alphabet and Broadcom also rose more than 1.0 per cent.
Not all good news
Away from the headline growth number, other data painted a mixed picture of the economy.
US consumer confidence fell in December, as households grew more anxious about jobs and incomes. Factory output was flat in November after falling the month before.
Even so, markets remain on a strong footing. All three major US share indexes are on track for a third straight year of gains. The S&P 500 and the Dow are also heading for an eighth consecutive monthly rise.
That recent momentum has fuelled hopes of a so-called “Santa Claus rally” - a seasonal pattern where the S&P 500 often rises in the final five trading days of the year and the first two sessions of January, according to the Stock Trader’s Almanac. This year, that period runs from Wednesday through to 5 January.
Holiday slowdown begins
Trading was already quieter than usual and is expected to thin out further as Christmas approaches.
US share markets will close early at 1.00pm ET on Wednesday and will be shut on Thursday for Christmas. About 14.01 billion shares changed hands during the session, below the recent 20-day average of 16.67 billion.
Company moves to watch
Shares in ServiceNow fell 1.5 per cent after the software company agreed to buy cybersecurity startup Armis for US$7.75bn (A$11.58bn) in cash.
US military shipbuilder Huntington Ingalls edged up 0.3 per cent after President Donald Trump announced plans for a new “Trump class” of battleships, which he said would be larger, faster and “100 times more powerful” than existing vessels.
Miner Freeport-McMoRan climbed 2.5 per cent to a 15-month high of US$52.29 (A$78.13), helped by record copper prices and a higher price target from Wells Fargo.
Market breadth
Falling stocks slightly outnumbered those that rose. On the Nasdaq, declines were more widespread.
The S&P 500 recorded 35 new 52-week highs and five new lows. The Nasdaq Composite logged 70 new highs and 178 new lows.
