US stocks closed higher on Friday, reversing earlier losses as investors wrapped up a holiday-shortened week that marked the start of the new year. According to a report by Reuters, the rally was driven by gains in large technology stocks, including Tesla and Nvidia, boosting the tech-heavy Nasdaq index.

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Despite Friday's strong performance, all three major stock indexes finished the week in the red. The S&P 500 posted its third weekly decline in four weeks, following a period of selling that capped a strong year for equities. The broader market was supported by momentum in artificial intelligence technology and the Federal Reserve’s first interest rate cuts in over three years, which helped drive gains for much of 2024.

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Ryan Detrick, chief market strategist at Carson Group, noted that the market had been oversold heading into the rally. "After the late-year weakness and a very oversold market, we finally saw some buyers step in," he said, while emphasising that trading volume was light, and there was little major news to influence the market. Detrick added that many big investors will return to their desks next week, which could impact market trends going forward.

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The economic backdrop showed mixed signals, with the Institute for Supply Management’s (ISM) purchasing managers' index (PMI) exceeding expectations. The PMI rose by 0.9 points to 49.3, the highest level since March, indicating a move toward potential expansion.

However, strong economic data has raised concerns about whether the Federal Reserve will proceed with further interest rate cuts, fearing that additional cuts could reignite inflation.

Richmond Fed President Thomas Barkin expressed optimism about the US economy in 2025, although he acknowledged the uncertainty surrounding trade policies under the incoming administration. President-elect Donald Trump's policies, including corporate tax cuts, deregulation, and tariffs, could stimulate corporate profits and economic growth but may also put pressure on inflation.

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Market Movement

The Dow Jones Industrial Average gained 339.86 points, or 0.80 per cent, closing at 42,732.13. The S&P 500 advanced 73.92 points, or 1.26 per cent, to 5,942.47, while the Nasdaq Composite added 340.88 points, or 1.77 per cent, finishing at 19,621.68.

All sectors in the S&P 500 saw gains, with consumer discretionary stocks posting the largest percentage increase after a recent downturn.

With earnings season still a few weeks away, analysts are forecasting an aggregate 9.6 per cent year-on-year growth for S&P 500 earnings in the fourth quarter, according to data from LSEG.

Among individual stocks, US Steel saw a drop of 6.5 per cent after President Joe Biden blocked its $14.9 billion sale to Japan’s Nippon Steel, citing national security concerns. Microsoft rose by 1.1 per cent following news of an $80 billion investment in AI-enabled data centers for fiscal 2025.

Meanwhile, alcohol producers faced losses after US Surgeon General Vivek Murthy suggested that alcoholic beverages should carry cancer risk warnings. Shares of Molson Coors and Brown-Forman fell by 3.4 per cent and 2.5 per cent, respectively.

Market breadth was positive, with advancing stocks outnumbering decliners by a 3.03-to-1 ratio on the NYSE and a 2.69-to-1 ratio on the Nasdaq. Trading volume on US exchanges was 14.09 billion shares, slightly below the 20-day average of 14.91 billion.

(With input from agencies)