 | AUTHOR: Jason Roque, CFP®, APMA®, AWMA® TITLE: Investment Adviser Rep – CCO TAGS: S&P 500, NASDAQ, Rates, FRB, CPI, Sentiment |
Markets climbed last week. Are dark days behind us or does 2023 have another trick up its sleeve?
Monday S&P 500 0.93% | NASDAQ 1.53%
Investors are betting the Federal Reserve Bank (FRB) will hold off on a rate hike this week. Equity markets advanced and the more rate dependent NASDAQ Composite index led the way. Consumer Price Index (CPI) data is due out on Tuesday and will surely be a driver for markets. A good reading could cause a rally; while a bad reading could shake the belief the FRB is pausing…
Tuesday S&P 500 0.69% | NASDAQ 0.83%
CPI came in cooler than expected, which is good news for the FRB meeting this week. The inflation proxy rose 4% over the last year, where the year over year figure last month was 4.9%. While this decrease was massive, it was largely expected. Next month has a similar opportunity to see inflation fall substantially.
Wednesday S&P 500 0.08% | NASDAQ 0.39%
The FRB opted to leave rates unchanged, while the larger news was their forecasted hikes. They projected two additional hikes late in the year. They also projected 1% in rate cuts for 2024. The hawkish message was received by equity markets. While markets did not fall, we did not see much of a climb after a “no hike” meeting.
Thursday S&P 500 1.22% | NASDAQ 1.15%
It seems it took a day for investors to accept that unchanged borrowing costs were a net positive to consumers. The ECB and the UK will likely need to raise rates substantially from here given stubborn inflation. This makes US equities look more favorable over European equities in the near term.
Friday S&P 500 0.37% | NASDAQ 0.68%
Markets closed in the red, but not enough to prevent a strong week over all for US equities. Consumer sentiment is projected to improve more than market expectations. The move could have raised concerns that the FRB may need to raise rates sooner than expected. This is a signal that consumer demand could return faster than anticipated.
Conclusion S&P 500 2.58% | NASDAQ 3.25%
The week did not disappoint. The inflation data impressed showing that CPI had reduced 20% from the prior month. Next month could have a similar outcome, as more than a quarter of CPI can be attributed to last June! The FRB supported the rally with the decision to pause their hiking cycle. Meanwhile they still delivered a hawkish view to keep the market from getting ahead of itself. Investors have been pricing in a rate cut late this year. The message from the FRB tells the markets that they should not be expecting any cuts.
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