Derailing the Fed’s Plan | February 3, 2023

AUTHOR: Jason Roque, MS, CFP®, APMA®, AWMA®
TITLE:       Investment Adviser Rep – CCO
TAGS:   S&P 500, NASDAQ, FRB, Rates, Jobs, PMI

While the Fed was the headliner, the Jobs report stole the show. Will progress in jobs derail the Fed’s plans?

Monday   S&P 500 1.30% | NASDAQ 1.96%

Markets retreated to open the week. This may have been a cursory move in anticipation of the Federal Reserve Board (FRB) meeting. Perhaps the jobs report due out on Friday drew this momentum shift.

Tuesday   S&P 500 1.46% | NASDAQ 1.67%

Tuesday was the last trading day of January and a busy day for corporate earnings. The result was a strong rebound from the losses on Monday. The S&P 500 managed to gain 6.18% in the month of January.

Wednesday   S&P 500 1.05% | NASDAQ 2.00%

Markets drifted down about half a percent until the FRB press conference; after which, they climbed into the close. There was much optimism over the term “disinflation” being using repeatedly. The FRB Chairman seemed very encouraged by the progress made.

Thursday   S&P 500 1.47% | NASDAQ 3.25%

The euphoria from Wednesday spilled through Thursday. Markets continued to march higher on news that the FRB will likely pause after March for the rest of 2023. Factory orders (while strong) disappointed on the day. A move that likely brought further optimism that the FRB hiking cycle might be at its end.

Friday   S&P 500 1.04% | NASDAQ 1.59%

Happy Jobs Friday! The jobs report showed twice the number of jobs added as was expected. The unemployment rate fell to 3.4%! Also, ISM non-manufacturing PMI improved to 55.2. All of these things are positives for the economy; in an abrupt reversal, however, investors retreated to close the week. This came as the stronger economic data may lead to the FRB raising rates beyond March.

Conclusion   S&P 500 1.62% | NASDAQ 3.32%

The week and the month of January proved profitable. Much of the gains across the month came on bad news–  we opened February with the FRB meeting which has generally been bad news for markets over the last year. This time was different, as the FRB carried a tone of accomplishment as though they had slayed the inflation beast. The FRB used the term disinflation repeatedly and seemed upbeat throughout the press conference. This was then followed by a jobs report that caused concern as damage continues to elude the job market. One place of encouraging data in the report was that wage growth has slowed. Slowing wage growth tempers fears that inflation will continue to persist. Ultimately, the FRB wants to see employment data soften to curtail inflation more persistently. That data will likely develop in the next few months.

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