February markets started out with a bang, thanks to the Federal Reserve (the Fed). February 1st marked the conclusion of the Fed’s first meeting of 2023 and resulted in the much-anticipated interest rate hike of 0.25%. That represents the lowest rate increase since the Fed began raising rates last year and continued the recent pattern of decreasing rate hike amounts, which began in December. Markets reversed course from earlier in the day and posted positive returns, with the NASDAQ Composite Index (NASDAQ) leading the pack with a 2% daily increase.
Further buoying hopes of a Fed policy change were Chairman Powell’s remarks, “We can now say for the first time that the disinflationary process has started. We can see that and we see it really in goods prices so far.”
However, all was not rosy as the Fed gave no hint of a pause in hikes altogether, “…ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” Powell added that the Fed would need to be restrictive for some time and the central bank had more work to do.1
In labor news, first-time jobless claims numbers continue to surprise. The February 2nd report showed 183,000 new claims, while economists expected 193,000. That was lower than last week’s 186,000, which was also a surprise.2 The Dow Jones Industrial Average (Dow) actually dropped on the news, as strong labor news may encourage the Fed to continue to raise rates. Meanwhile, the NASDAQ and S&P 500 posted strong returns.
Earlier this week the inflation report for the month of January was released. It showed inflation numbers remaining stubbornly high: rising 0.4% for the month, which translates to an annual gain of 6.4%.3 Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office put it this way, “While there were no major surprises in today’s CPI reading, it is a reminder that while inflation has peaked, it could be a while before we see it moderate to normal levels.” Of course, the biggest unanswered question is: how will the Fed proceed, given the current level of inflation? We will continue to closely follow the situation and keep you informed.
Reviewing returns for the first half of February, all the major markets posted gains. As of February 15th, the Dow rose 42 points (0.12%), the S&P 500 gained 71 points (1.74%) and the NASDAQ added 486 points (4.2%).
1 www.cnbc.com “S&P 500 closes higher on Wednesday, Nasdaq adds 2% as investors look past Fed’s rate hike” February 1, 2023
2 www.investors.com “Dow Jones Falls 275 Points After Jobless Claims; Meta Soars 20% On Strong Sales, $40 Billion Buyback” February 2, 2023
3 www.cnbc.com “Dow closes more than 150 points lower following January’s hotter-than-expected inflation report” February 14, 2023
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