[New York Stock Exchange] Surprise Q4 Growth and AI Rally Drive Gains... S&P 500 Hits Record High, Santa Rally Begins

Q3 U.S. GDP Grows 4.3%, Surpassing Market Expectations
Despite Robust Growth, Market Still Expects Two Rate Cuts Next Year
AI Stocks Like Nvidia and Broadcom Lead Gains; Year-End Santa Rally Hopes Rise

All three major U.S. stock market indices rose simultaneously on December 23 (local time). With the U.S. economy showing strong growth of over 4% in the third quarter of this year, the S&P 500 index reached an all-time high. Despite lower trading volumes ahead of the Christmas holiday, buying continued, especially in artificial intelligence (AI)-related stocks, driving the market upward.

Traders are working on the floor of the New York Stock Exchange (NYSE) in the United States. Photo by UPI Yonhap News

On this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average closed at 48,442.41, up 79.73 points (0.16%) from the previous trading day. The large-cap S&P 500 index rose 31.3 points (0.46%) to 6,909.79, setting another all-time high. The tech-heavy Nasdaq index finished at 23,561.844, up 133.015 points (0.57%).

AI-related stocks led the rally. Nvidia jumped 3.01%. Broadcom also showed strength, rising 2.3%. Alphabet, the parent company of Google, gained 1.48%, while Meta, the parent company of Facebook, and Microsoft (MS) climbed 0.52% and 0.4%, respectively.

The robust growth of the U.S. economy was the key driver behind the stock market's rise. According to the Bureau of Economic Analysis (BEA) under the U.S. Department of Commerce, the advance estimate for real gross domestic product (GDP) in the third quarter grew at an annualized rate of 4.3% compared to the previous quarter. This not only surpassed the 3.8% growth rate in the second quarter but also significantly exceeded the market forecast of 3.2% compiled by Dow Jones.

Previously, the U.S. economy posted a -0.6% growth rate in the first quarter of this year due to a surge in imports ahead of President Donald Trump's high tariffs. However, it rebounded to 3.8% in the second quarter and further to 4.3% in the third quarter. The growth was driven by an increase in consumer spending, which expanded from 2.5% in the second quarter to 3.5% in the third quarter, as well as improvements in the trade balance. In the third quarter, exports rose by 8.8% while imports decreased by 4.7%, with net exports contributing 1.6 percentage points to the growth rate.

However, inflationary pressures have somewhat increased. The core personal consumption expenditures (PCE) price index, which the Federal Reserve considers most important, rose by 2.9% in the third quarter, up from 2.6% in the second quarter. The core PCE price index, which excludes food and energy, is used to assess the underlying trend in inflation.

Consumer sentiment appears to be weakening. According to the Conference Board, the U.S. consumer confidence index for December was 89.1 (with 1985=100 as the base), down 3.8 points from the previous month (92.9) and below the market forecast of 91.0 compiled by Dow Jones. This is interpreted as a reflection of weakened consumer sentiment due to prolonged high inflation.

The market is still factoring in the possibility of two interest rate cuts by the end of next year. According to CME FedWatch, the interest rate futures market currently sees a 69.3% probability that the federal funds rate, which is now at 3.5-3.75% per year, will be cut twice by 0.25 percentage points each by the end of next year.

Eric Sterner, Chief Investment Officer (CIO) at Apollon Wealth Management, said, "For now, the market is unlikely to back away from expectations of two rate cuts," adding, "While the likelihood of a cut early in the year is low, we will soon learn whom President Trump will nominate as the next Fed chair, and that person will certainly be more dovish (favoring monetary easing) than current Fed Chair Jerome Powell."

Expectations for a year-end 'Santa Rally' are also growing. Typically, the last five trading days of December and the first two trading days of January are considered the Santa Rally period, which officially begins the day after Christmas Eve. According to LPL Financial, since 1950, the S&P 500 index has risen during this period 78% of the time, with an average return of 1.3%.

U.S. Treasury yields are rising, particularly for short-term bonds, reflecting strong economic indicators. The yield on the two-year U.S. Treasury note, which is sensitive to monetary policy, rose by 2 basis points (1bp = 0.01 percentage point) from the previous day to 3.53%, while the yield on the 10-year U.S. Treasury note, the global benchmark, remained at 4.16%.

Meanwhile, the New York Stock Exchange will close early at 1 p.m. on December 24, Christmas Eve, and will be closed on December 25, Christmas Day.