Market Update 02/06/23

Chris Koruth John

Markets remained mixed from Jan. 31 to Feb. 6, as investors attempted to predict the direction of the Federal Reserve’s rate hikes amid strong labor data.

Tuesday began with a rally across the big three U.S. indexes thanks to widespread expectation of a 25-basis-point hike in interest rates to start the new year. Banks and investors alike believed that the February hike will constitute the beginning of a dovish stance from the Fed.

By Tuesday’s close, the Dow Jones Industrial Average rose 1.1%, the S&P 500 rose 1.5% and the Nasdaq composite rose 1.7%. Large-cap technology and consumer discretionary stocks may have been the major market movers ahead of the Fed’s Feb. 1 meeting.

On Wednesday, the Fed hiked interest rates by 25 basis points, bringing rates to their highest level since 2007. Markets saw a turbulent trading session with a lot of the expected market movement being priced in.

“I will say that it is gratifying to see the disinflationary process now getting underway,” Fed Chair Jerome Powell said in a post-meeting press conference. “We continue to get strong labor market data, but, you know, we’ll update those forecasts in March.”

Investors appreciated Powell’s acknowledgement of inflation data that depicted signs of an economic slowdown. A loosening of monetary policy would significantly boost sectors such as consumer discretionary and Big Tech. The Dow rose 0.2%, S&P 500 rose 1.0% and the Nasdaq rose 2.0%.

The U.S. Bureau of Labor Statistics announced that job openings increased by 570,000 month over month to 11 million for the final business day of December. The food service industry and retail trade were the major contributors to this increase, adding 409,000 and 134,000 new job openings, respectively.

Stocks endured a stormy session on Thursday as investors processed underlying messages behind the results of the Fed’s meeting. The Dow slid 0.1%, S&P 500 rose 1.5% and the technology-heavy Nasdaq rose 3.3%.

The European Central Bank followed the Fed’s lead by hiking interest rates by 50 basis points. The bank looks to pursue a hawkish stance until the inflation rate comes down to a target of 2.0%.

The U.S. Department of Labor disclosed that jobless claims for the week of Jan. 28 came in at 183,000, beating estimates of 200,000 from Reuters. This number signified the lowest total jobless claims made in a week since April 2022. Claims remained low, even after accounting for a possible recessionary climate.

Markets bled on Friday amid widespread panic of a revised Fed agenda due to stronger-than-expected labor data. By Friday’s close, the Dow fell 0.4%, S&P 500 fell 1.0%, and the Nasdaq fell 1.6%. The indexes were impacted by uncertainty surrounding Big Tech stocks.

As a result of strong labor data released on Feb. 1, stocks continued to slide on Monday. Market sentiment remained weary as investors continue to digest the possibilities for the next Fed rate hike in March.

Investors should keep an optimistic outlook moving forward with many securities trading at an extremely discounted rate. Big Tech stocks continue to drive market movement — investors should be diligent in gaining exposure to the sector.