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Equities Rise as Investors Focus on the Fed Ahead
Equity markets continued to rise last week as the Fed kept rates steady and the labor market showed sustained strength. Global equities (represented by the MSCI All Country World Index) were up 0.92%, and domestic stocks (represented by the S&P 500 Index) were up 1.41%.
The first FOMC meeting of the year concluded last Wednesday as widely expected as the Fed kept their benchmark rate unchanged. This marks four consecutive decisions to keep rates steady at the highest level in over 20 years. Investors keyed in on Fed Chair Jerome Powell’s press conference following the meeting as they searched for signs of when rate cuts may occur. Powell remained cautious reiterating the same message that the Fed wants greater confidence that inflationary pressures will continue to ease but indicated that cuts could potentially happen in 2024. Markets reacted as the probability the Fed keeps rates unchanged at their March meeting jumped to over 80% while just a week earlier it was nearly a coin flip between a rate cut or hold steady decision, according to the CME FedWatch Tool.
US Labor Market
The monthly jobs report for January showed continued strength in the US labor market. The economy added 353,000 nonfarm payrolls, nearly double consensus estimates and the second consecutive month of over 330,000 jobs. Wage growth also exceeded expectations as average hourly earnings rose 0.6% for the month and 4.5% year-over-year, a slight deviation of the moderating trend over nearly the last two years. The unemployment rate remained steady at 3.7%, still near multi-decade lows.
This week is relatively lighter in terms of the economic data calendar, but Q4 corporate earnings announcements continue to be a focal point for investors. With around 46% of S&P 500 companies already reporting Q4 results, the S&P 500 blended growth rate would be 1.6% according to FactSet. This would mark the second consecutive quarter of earnings growth.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.