Markets Close the Week Mixed as the Federal Reserve Leaves Rates Unchanged

Markets Close the Week Mixed as the Federal Reserve Leaves Rates Unchanged

It was a mixed week for equity markets, as the Federal Reserve’s decision, ongoing earnings releases, and headlines surrounding the Fed chair nomination gave investors plenty to digest. Global equities, as measured by the MSCI ACWI, rose 0.65% for the week, while domestic large-cap stocks, measured by the S&P 500, gained 0.35%. Small-cap stocks were the notable laggards, with the Russell 2000 declining more than 2% for the week.

FOMC Meeting

The Federal Open Market Committee concluded its January meeting by holding the federal funds target range steady at 3.5%–3.75%. In its statement, the Committee upgraded its assessment of economic conditions, noting that growth continues at a solid pace supported by resilient consumer spending and improving business investment. While job gains remain modest, the Fed acknowledged signs of stabilization in the labor market, even as inflation remains elevated.

Fourth-Quarter Earnings Season Update

Fourth-quarter earnings season moved into full swing, with several Magnificent 7 companies including Apple, Meta Platforms, Microsoft, and Tesla reporting results that exceeded expectations, though stock reactions were mixed as Microsoft shares declined on concerns around elevated capital spending and slowing cloud growth. More broadly, S&P 500 earnings are expected to grow roughly 10% year over year in the fourth quarter, led by the technology sector with growth above 25%, and with eight of eleven sectors forecast to report higher earnings, pointing to increasingly broad-based profit growth.

Warsh Tapped to Lead Fed

President Trump nominated former Federal Reserve Governor Kevin Warsh to succeed Jerome Powell when Powell’s term ends in mid May, with Warsh now subject to Senate confirmation. Warsh brings deep policy experience, including a key role during the 2008 financial crisis, and is viewed as potentially more supportive of rate cuts than Powell, citing expectations for higher productivity driven by technology and deregulation that could allow for stronger growth without a significant inflation tradeoff. He has also been critical of the size of the Federal Reserve balance sheet, arguing that inflation risks from lower rates could be offset by balance sheet reduction, and has called for a broader, more flexible approach to inflation forecasting.

Looking Ahead

For the week ahead, as with every first Friday of the month, the focus will be on the employment report, with the ISM Purchasing Managers’ Indexes released earlier in the week.

As Always

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.