After several twists and turns this year, stock investors are in a celebratory mood. The S&P 500 set a new high for the year on Friday, a day after clocking its best month of 2023 in November, in a rally that quickly erased the benchmark index’s steep drop over the summer.
The reversal has come as investors have cheered signs that the Federal Reserve has finished raising interest rates, the primary tool in the central bank’s effort to slow inflation. Those high rates have been a drag on corporate valuations because they raise costs for consumers and companies and give allure to investments outside the stock market.
Jerome H. Powell, the Fed chair, appeared to add to investors’ bullish mood on Friday, suggesting that the economy continues to cool as expected.
“We’re getting what we wanted to get, we now have the ability to move carefully,” Mr. Powell said at an event.
With a 0.6 percent rise on Friday, the S&P 500 nudged past the previous high for the year, set at the end of July. The index has risen over 10 percent from its late October low. This week was the fifth straight weekly gain for the index, its longest winning streak since June.
Investors have also been encouraged that the rally has been broad based. It has been driven by the large technology companies that dominate the index but has also been backed up by a rise in over 80 percent of the stocks in the index in the past month.
Overall, the S&P 500 has risen nearly 20 percent this year, surprising many analysts who had predicted at the start of 2023 that the index would extend its struggle from 2022, when it fell by around 20 percent. The rally in November has left the index just 4 percent below its highest-ever level, which many consider the bar that must be surpassed to confirm a new bull market.
As inflation has continued to cool, pockets of weakness in the economy have given the Fed pause, as officials attempt to slow rising prices without tipping the country into a severe downturn. Fed officials held interest rates steady at their meeting last month to allow the rate increases so far to fully work through the economy.
Investors have welcomed the central bank’s caution after fears mounted over the summer that the resilience of the economy — which grew at a swift 5.2 percent pace in the three months through September — would prompt the Fed to raise rates even further, and keep them elevated for a long time.
The 10-year Treasury yield, one of the most important interest rates in the world, has fallen almost 0.8 percentage points since its peak in October, to around 4.2 percent, a huge move in that market. That decline has pulled down borrowing costs that track the 10-year yield, like mortgage rates, and helped push stocks higher.
The slide has undone some of the rise in Treasury yields that unnerved investors over the summer, dragging the S&P 500 from its July high.
On Friday, the S&P 500’s rally coincided with a sharp drop in two-year Treasury yields, which are sensitive to investors’ changing interest expectations.
But some analysts and investors have cautioned that the rise in the S&P 500 is not representative of the precarious position many companies across the country find themselves in. Even if the Fed refrains from raising rates further, they say, a long period of keeping rates at their current, elevated level could still cause pain for corporate America.
The Russell 2000 index of smaller companies in the United States, which lack the scale of the giants in the S&P 500 and tend to feel the effects of interest-rate shifts and economic wobbles more sharply, remains roughly 9 percent below its level at the end of July, and up just 4 percent for the year.
