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By Stephen Culp
NEW YORK (Reuters) -U.S. stocks rebounded on Friday as investors neared the end of a holiday-shortened week that also rang in a new year, which brought with it expectations of additional Federal Reserve rate cuts and looser regulatory policies from the incoming administration.
A broad rally sent all three major U.S. stock indexes to a higher close, with megacap growth companies, such as Tesla and Nvidia, providing much of the muscle to the upside and putting the tech-heavy Nasdaq out front.
Even so, all three indexes posted modest declines for the week, with the S&P 500 logging its third weekly loss in four.
A multi-session selloff put a dour cap on what was a banner year for the equities market, as continued momentum of artificial intelligence technology and the U.S. Federal Reserve's first policy rate cuts in three-and-a-half years helped fuel double-digit gains in 2024.
"After the late-in-the-year weakness, and a very oversold market, we finally saw some buyers step in," said Ryan Detrick, chief market strategist at Carson Group in Omaha. "Obviously the past week-and-a-half has been disappointing for the bulls, but volume has been light and there hasn't been a lot of news."
"Let's just remember, starting next week, on Monday, that's when a lot of the big money managers come back to the desk," Detrick added. "We'll see if this bullish trend can continue."
On the economic front, the Institute for Supply Management's (ISM) purchasing managers' index (PMI) surprised to the upside by gaining 0.9 point to 49.3, its highest reading since March, nudging ever closer to expansion territory.
A run of fairly robust economic data has called into question the need for additional interest rate cuts from the Fed in the near term due to the possibility of re-igniting inflationary pressures.
Richmond Fed President Thomas Barkin said the U.S. 2025 economic outlook was positive, despite uncertainty about the impact of trade and other policies that may be pursued by the incoming Trump administration.
The newly elected Congress convened for its first session on Friday, and U.S. President-elect Donald Trump is expected to take the oath of office on Jan. 20.
While Trump's proposals - which include cutting corporate taxes, easing regulations and imposing tariffs - could boost corporate profits and energize the economy, but they also run the risk of placing upward pressure on inflation.
The Dow Jones Industrial Average rose 339.86 points, or 0.80%, to 42,732.13, the S&P 500 gained 73.92 points, or 1.26%, to 5,942.47 and the Nasdaq Composite gained 340.88 points, or 1.77%, to 19,621.68.