Markets “In a Nutshell” for February 7, 2022
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average rose 1.00%, the S&P 500 was up 1.50%, and the NASDAQ rose 2.40%. Foreign stocks (MSCI EAFE) were also up, rising 2.10%. Bond prices were lower for the week, with the 10-year U.S. Treasury ending the week at 1.92%. (Data source: Wall Street Journal)
The January jobs report was released last week and was one of the more promising reports of recent. In January, 467,000 jobs were added, far exceeding expectations of roughly 150,000. Although the economy was able to add roughly triple the number of jobs that were expected the unemployment rate rose from 3.9% to 4.0%. This may be seen as a negative for the economy, but in this case, it was due to the spike in labor force participation. A worry for the market has been the people who have completely left the workforce since the pandemic began and have not returned. This recent report showed a sizeable spike in people who have joined the workforce in the last month. Even with this spike, we are still short roughly 1.7 million jobs compared to the pre-pandemic levels.
Future Rate Hikes
One of the main headlines the market will be paying close attention to in the near future is the Fed’s decision when it comes to raising rates. The question is not if we get any hikes, as rate hikes are inevitable this year, but how many and how aggressive are they in each hike. Currently, expectations are as high as 6 rate hikes in the year, and the first one coming in March. Another question is how much the hike will be in March, currently, there is about a 1 in 3 chance priced in that the Fed will increase rates by 50 basis points or 0.50%. If we see a 50 basis point hike in rates, the market may worry that the Fed believes they now need to play catch up with inflation. This could cause more volatility as it would show there may be some panic within the Fed that they need to raise rates faster than expected.
What is the highest single rate hike in US history by the Fed? (Scroll Down for Answer)
Have a Great Week!
1) 4%. In October, 1979, Fed Chair Paul Volcker raised rates by 4% in one rate hike. Many credit Volcker for helping solve the high unemployment and high inflation of the 1970’s.