Santa Rally In US Markets: Wall Street Ends Higher As Santa Rally Begins

Wall Street's main indexes all closed higher on Tuesday, with gains in megacap and growth stocks bolstering benchmarks in a truncated Christmas Eve session.

Both the Dow Jones Industrial Average .DJI and Nasdaq Composite .IXIC scored four straight sessions of gains, with the S&P 500 .SPX taking its winning streak to three sessions,marking the first day of the seasonal Santa Claus rally.

The Dow had skidded for 10 straight sessions earlier this month, its longest losing streak since 1974.

With megacap stocks having outsized influence on markets, their performance is often a key driver of indexes. When coupled with reduced trading volumes and few other catalysts, as many investors take time off for the holidays, this is even more pronounced.

All the so-called Magnificent Seven megacap technology stocks climbed on Tuesday, led by the 7.4 per cent jump in Tesla TSLA.Oshares.

The automaker's best one-day gain in six weeks helped push the consumer discretionary .SPLRCDindex 2.6 per cent higher. It was the top gaining sector in the S&P, with all 11 ending in positive territory.

Elsewhere, chip manufacturers were also buoyant. Broadcom AVGO.O and Nvidia NVDA.Orose 3.2 per cent and 0.4 per cent, respectively, while Arm Holdings ARM.O climbed 3.9 per cent, recouping most of the losses suffered the previous day from losing a court case.

Growth names rose despite US Treasury interest rates remaining elevated - the benchmark 10-year note <US10YT=RR> yielded around 4.61 per cent on Tuesday, its highest level since May. Traditionally, higher debt costs crimp growth stocks.

However, the long-term themes around technology development, including advancements in artificial intelligence, overshadow any near-term moves in Treasuries, said Charlie Ripley, senior investment strategist for Allianz Investment Management.

"This reinforces that view that the sector is going to remain strong, and should be well into the new year," he said.

The S&P 500 .SPX climbed 65.97 points, or 1.10 per cent, to 6,040.04 points, while the Nasdaq Composite .IXIC advanced 266.24 points, or 1.35 per cent, to 20,031.13. The Dow Jones Industrial Average .DJI rose 390.08 points, or 0.91 per cent, to 43,297.03.

Stock markets shut at 1:00 p.m. ET on Tuesday and will be closed for Christmas on Wednesday.

After a stellar run to record highs following the November US election, which sparked hopes of pro-business policies under President-elect Donald Trump, Wall Street's rally hit a bump this month as investors grappled with the prospect of higher interest rates in 2025.

The Federal Reserve eased borrowing costs for the third time this year last Wednesday, but signaled only two more 25-basis-point reductions next year, down from its September projection of four cuts, as policymakers weigh the possibility of Trump's policies stoking inflation.

Allianz's Ripley said the themes which had driven the market higher in the past two months remained intact, and actions by the Fed had not killed the rally.

"Heading into 2025, things are set up with good positioning," he said, noting factors including economic outlook, consumption in the US and the labor market.

Crypto-related stocks traded higher on Tuesday, with Microstrategy MSTR.O, Riot Platforms RIOT.O, and MARA Holdings MARA.Oall climbing between 4.7 per cent and 8.1 per cent, as the price of bitcoin advanced.

NeueHealth NEUE.N soared 75 per cent after the healthcare provider said New Enterprise Associates, its largest shareholder, and a group of existing investors will take the company private in a $1.3 billion deal.

American Airlines' AAL.O shares edged up 0.6 per cent after trading lower for much of the session. The carrier briefly grounded all its flights in the United States on Tuesday due to an unspecified technical issue.