Wall Street Today | US Stocks Rise, Treasury Yields Slump as Fed Signals Dovish Skew

U.S. stocks pushed to back-to-back records Thursday, with the Dow Jones Industrial Average up less than 60 points after carving out a fresh record. Optimism about the Federal Reserve's interest-rate-cut projections delivered a day ago had been fueling a powerful rally. Treasury yields fell, and interest rate-dependent stocks in the housing or auto sector flew.

Wednesday's FOMC meeting and Powell's dovish speech sent stock and bond markets into a frenzy. The decline in risk-free rates confirms the Goldilocks period, allowing many industries suppressed by high-interest rates to recover and may change the pricing logic of many assets.

The benchmark 10-year yield slipped five basis points Thursday to as low as 3.97%, down from a peak of 5.02% in late October.

Jeffrey Gundlach at DoubleLine Capital says US 10-year yields will fall toward the low 3% range. Former Pimco bond king Bill Gross dismissed such a prediction, saying the yield is already about where it should be at just 4%.

The latest batch of U.S. economic data released Thursday was also benign, showing initial jobless claims fell by 19,000 to 202,000 in the week ending Dec. 9, the lowest level since mid-October. Data also showed sales at U.S. retailers rose a solid 0.3% in November in a good start to the holiday shopping season, suggesting the economy might not be cooling off all that much.

Mortgage rates fell below 7% for the first time since August, as the U.S. economy is showing signs of cooling off following the U.S. Federal Reserve signaling a turn to rate cuts.

That was down eight basis points from the previous week - one basis point is equal to one-hundredth of a percentage point.  "We likely will see a gradual thawing of the housing market in the new year,' Freddie Mac says. A year ago, the 30-year fixed-rate mortgage was averaging 6.31%.

Stocks were up big following Wednesday's FOMC rate meeting, where the committee announced it would not raise rates and showed off a dot plot of three likely rate drops in 2024. Industries like retail, housing, and automotive rose in the hope that it would become easier to finance consumer purchasing. Solar stocks enjoyed time in the sun, for a little-known reason.

As Travis Hoium of the Motley Fool wrote, solar panel companies run on 20-30-year loans for consumer installations on detached single-family housing units. When interest rates rise, it eats directly into solar panel profit. When they fall, revenue and margins get better on solar loans.

Rates dropped after the Fed indicated on Wednesday that they're on a path toward lowering interest rates more and sooner than expected. Redfin and real estate firms like it predict that Fed movements are a reason mortgage rates are likely to drop into the mid-6% range in 2024.