Market Update 02/13/23

Chris Koruth John

Markets were turbulent from Feb 7. to Feb. 13, as investors remain wary of future rate hikes and the possibility of a soft landing. 

On Tuesday, the markets rose slightly thanks to comments made by Federal Reserve Chair Jerome Powell at the Economic Club of Washington, D.C.

“The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy,” Powell said.

By Tuesday’s close, the Dow Jones Industrial Average rose 0.8%, the S&P 500 rose 1.3% and the Nasdaq composite rose 1.9%.

The biggest contributors to this positive close were technology and energy stocks, which both  suffered recently amid recessionary concerns. Oil prices made gains with Brent crude up 3.3% and West Texas Intermediate crude up 4.1%.

On Wednesday, all three major indexes slid due to a multitude of Fed officials saying that rate hikes will continue through the year. John Williams, the CEO of the New York Fed, told Reuters that a federal funds rate of between 5% and 5.25% “seems a very reasonable view of what we’ll need to do this year in order to get the supply and demand imbalances down.”

By the closing bell, the Dow fell 0.6%, S&P 500 fell 1.1% and the Nasdaq fell 1.7%. Large-cap technology stocks heavily weighed down the technology-heavy Nasdaq with names like Alphabet Inc. and Meta Platforms Inc. dropping 7.7% and 4.3%, respectively. 

Alphabet lost approximately $100 billion in market capitalization due to a malfunction with Bard — a competitor to Microsoft Corp. backed artificial intelligence tool, ChatGPT. An advertisement for Bard touted wrong information for hours before Alphabet executives cited artificial intelligence as the future of the business.  

Treasury yields rose on Thursday due to a softening of demand for 30-year bonds. The 2-year Treasury note rose to the highest levels since the end of 2022, while the 10-year Treasury note rose to a one-month high.

A rise in Treasury yields result in the inherent overvaluation of stocks, especially those in Big Tech. The Dow slid 0.7%, S&P 500 slid 0.9% and the Nasdaq slid 1.0%.

The indexes closed mixed on Friday due to reports that consumer sentiment reached a 13-month high. Sentiment increased month over month by 1.5 points to 66.4% in February. Investors took this news positively, as the Dow rose 0.5%, S&P 500 rose 0.2% and the Nasdaq fell 0.6%.

On Monday, markets rebounded ahead of the upcoming consumer price index reading. The index is used by investors as a proxy for inflation. The street’s median consensus puts the expected index at 6.2%.

Investors should look to hedge any positions that may plummet during a recessionary climate. Value stocks that focus on shareholder return through dividends may be a robust play during this time.