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Week in Review: Market Overcomes Rate-Hike Expectations

Week in Review: Market Overcomes Rate-Hike Expectations

Each of the major indices rose more than 1.0% this week, as the market continued to stabilize from an oversold condition despite increased rate-hike expectations. The Nasdaq Composite led the advance with a 2.4% gain, followed by the S&P 500 (+1.6%), Russell 2000 (+1.7%), and Dow Jones Industrial Average (+1.1%).

Eight of the 11 S&P 500 sectors closed in positive territory, paced by the energy (+4.9%), consumer discretionary (+3.9%), and financials (+3.5%) sectors with impressive gains. The materials (-0.2%), real estate (-0.2%), and communication services (-0.3%) sectors ended the week with modest losses.

The market had plenty going for it this week, including month-end rebalancing activity, first-of-the-month inflows, an improved technical posture, a fear of missing out on further rebound gains, and better than expected (and feared) earnings reports. The S&P 500 reclaimed its 200-day moving average (4444).

Alphabet (GOOG) and Amazon.com (AMZN) saw big gains following their earnings reports but not as big as Snap’s (SNAP), which provided investors a huge sigh of relief after Meta Platforms (FB) plunged over 25% following its disappointing earnings news. SNAP popped off with a 60% gain after falling 24% prior to its report.

Expectations for the Fed to raise the fed funds rate by 50 basis points in March increased noticeably after the January employment report displayed surprisingly strong jobs growth and higher-than-expected wage gains. According to the CME FedWatch Tool, the probability of that happening increased to 36.6% on Friday, versus 14.3% one week ago.

On a related note, both the ECB and the Bank of England acknowledged the inflation risks in the economy. The Bank of England responded accordingly with a 25-basis-point rate hike for the second meeting in a row, and the ECB said it couldn’t rule out a rate hike this year after previously indicating that was an unlikely possibility.

For good measure, the Prices component of the January ISM Manufacturing Index increased to 76.1% from 68.2%, and WTI crude futures topped $92 per barrel ($92.30, +2.08, +2.3%) at week’s end.

Treasury yields pushed higher amid the inflation pressures and hawkish Fed expectations. The 2-yr yield rose 15 basis points to 1.32%, and the 10-yr yield rose 15 basis points to 1.93%. The U.S. Dollar Index fell 1.9% to 95.44 amid a stronger euro.

Week in Review provided by Briefing Investor.

Mike Minter

Mike develops investment portfolio allocations, handles trading and rebalancing, and conducts research and analysis as a Portfolio Manager and Financial Advisor for the firm. As a perpetual student of investing and the markets, Mike considers himself obsessed with the subject. Mike has earned the CERTIFIED FINANCIAL PLANNER™ (CFP®) and Certified Fund Specialist® designations. He is also an active member of the Houston chapter of the Financial Planning Association (FPA).   Read Mike’s Profile HereRead More Articles by Mike

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