By Chuck Mikolajczak
NEW YORK (Reuters) -Global stocks edged higher on Tuesday after three straight sessions of declines spurred by pressure from elevated U.S. Treasury yields, but were poised to close out the year with gains of more than 16%.
On Wall Street, U.S. stocks were modestly higher, rebounding from recent weakness, with each of the 11 major S&P 500 sectors higher, led by energy stocks.
The Dow Jones Industrial Average rose 112.81 points, or 0.27%, to 42,688.89, the S&P 500 gained 5.82 points, or 0.10%, to 5,913.01 and the Nasdaq Composite fell 21.86 points, or 0.12%, to 19,463.98.
U.S. equities have surged this year, with the S&P 500 up more than 24% on the year and on track for its fifth annual gain in the past six. The two-year jump of about 54% would mark the strongest back-to-back annual performance for the index since 1997-1998.
The rally has been fueled by growth expectations surrounding artificial intelligence, expected rate cuts from the U.S. Federal Reserve, and more recently the likelihood of deregulation policies from the incoming Trump administration.
But the recent economic forecast from the Fed, along with worries that President-elect Donald Trump’s policies such as tariffs may prove inflationary, have sent yields higher, with the benchmark 10-year U.S. Treasury note reaching its highest level since May 2 at 4.641% last week, helping to cool the rally.
“Any further gains in equities are unlikely until there is more clarity about what the incoming administration’s tax and tariff policies will look like,” said Raffi Boyadjian, lead market analyst at brokerage XM.
“How earnings expectations evolve in the coming months will also be crucial for Wall Street, particularly for tech and AI stocks.”
SECOND-STRAIGHT YEARLY GAIN
MSCI’s gauge of stocks across the globe rose 0.90 points, or 0.10%, to 844.64 and was set for a second-straight yearly advance.
In Europe, the STOXX 600 index rose 0.51% but closed out the session with its biggest quarterly percentage drop in more than two years. It ended 2024 with a gain of 5.99%.
Trading volumes were subdued ahead of the New Year holiday on Wednesday. Stock markets in Germany, Italy and Switzerland were closed on Tuesday, while those in the UK, Spain and France had a half-day trading session.
The yield on benchmark U.S. 10-year notes fell 1.8 basis points to 4.527%, building on a decline in the prior session but staying above the 4.5% mark that many analysts see as problematic for equities. The yield has risen about 69 basis points this year, including a surge of more than 74 bps in the fourth quarter.
Widening interest-rate differentials have increased the appeal of the U.S. dollar this year. The dollar index, which measures the greenback against other major currencies, is up 6.6% on the year after surging 7.5% in the fourth quarter, its biggest quarterly jump since the first quarter of 2015.
On Tuesday, the dollar index rose 0.1% to 108.16, with the euro down 0.2% at $1.0386. The single currency is down 6% on the year versus the greenback after slumping 6.9% in the quarter.
Against the Japanese yen, the dollar weakened 0.04% to 156.76. Sterling strengthened 0.02% to $1.2551.
U.S. crude rose 0.8% to $71.55 a barrel and Brent advanced to $74.49 per barrel, up 0.69% on the day as data showing an expansion in Chinese manufacturing was balanced by Nigeria targeting higher output next year. Oil prices were still on track to close out 2024 with their second straight year of declines.
(Reporting by Chuck Mikolajczak, additional reporting by Johann M Cherian, Pranav Kashyap and Purvi Agarwal in Bengaluru; Editing by Rod Nickel)
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