Check on your 401(k) for a boost. Here’s why stocks hit record highs this week.

If you’re looking for a little holiday cheer, it’s the perfect time to check that 401(k) balance. Stocks are soaring this week and the Dow Jones Industrial Average hit a record high, erasing nearly two years of turmoil. The previous high was set in January 2022.

The S&P 500, a collection of the 500 largest U.S. companies, is also close to its all-time high, with the index up more than 23% in 2023.

Here is what happened during the week of Dec. 10 that has markets rallying for the holidays.

Federal Reserve signals end to rate hikes

On Wednesday, Dec. 13, Federal Reserve Chair Jerome Powell stood in front of the podium and gave everyone the gift of hope: That rate hikes are over and cuts are coming. The Federal Reserve is projecting three rate cuts in 2024. 

“We are seeing strong growth that appears to be moderating,” Powell said. “We’re seeing a labor market that is coming back into balance by so many measures, and we’re seeing inflation making real progress. These are the things we’ve been wanting to see.“

Of course, Powell had plenty of words of caution – the economy has been very unpredictable since the pandemic and the economic situation could always change – but the market blew right past those warnings. 

“Ongoing progress toward our 2% inflation objective is not assured,” he said. “We are prepared to tighten policy further if appropriate.”

Consumer prices keep cooling

The latest inflation reading from the Bureau of Labor Statistics (BLS) also came in this week. Overall consumer prices are up 3.1% on the year, while core inflation, which strips out food and energy prices, is still at 4%, double the 2% inflation target.

The Fed predicts core inflation from its preferred gauge, personal consumption expenditures, won’t reach 2% until 2026. That said, projections have it at 2.4% by the end of 2024.

Wholesale prices are better than expected

Wholesale prices are giving markets reason to be optimistic. The producer price index is what’s called a leading economic indicator. It hints at what is coming down the pike for inflation.

The BLS also released wholesale prices this week, which were flat for November, better than predicted. On an annual basis, they went up just 0.9%.

Gas could soon drop below $3

Meanwhile, gas prices are at their lowest point of the year. The national average sits around $3.10 a gallon, according to the latest AAA data.

Some analysts predict it could go below $3 by the end of the year. AAA said that more than half of all gas stations in the U.S. are already below that mark.