Markets “In a Nutshell” for January 30, 2023
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average rose 1.80%, the S&P 500 was up 2.50%, and the NASDAQ rose 4.30%. Foreign stocks (MSCI EAFE) were also up, rising 1.10%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 3.52%. (Data source: Wall Street Journal)
Market Performance After Down Year
In 2022 the S&P 500 declined 19.4%, only the 5th time since 1950 in which the market declined 15% in a calendar year. The following year tends to perform well when we see this big of a decline in a calendar year with an average gain of 12.9%. The even better news is that in the 18 times that the S&P 500 had a down year, the next year performed even better at 15.3%. Although at the end of the year in most of these cases, the market was up, it did not come without volatility. We could see continued volatility this year as investors continue to pay close attention to the Fed and their views on rates and the economy. Another risk for increased volatility is the Russia-Ukraine war if things were to escalate. However, if there is some resolution to the conflict, we could see that give a boost to markets and economies around the world.
The Fed will be meeting for the first time in 2023 on Tuesday and Wednesday with a rate hike expected on Wednesday. The market is expecting a 0.25% hike as they continue to try and bring inflation down to their target of 2%. The Fed has not been as transparent with this rate hike as they were last year so the market will be paying close attention to what Fed Chair Powell has to say as his remarks will likely have a bigger immediate impact on the market than this rate hike. The market is not buying into the Fed raising rates much further and seems to believe Powell is bluffing. This could cause some volatility in the market if Powell doesn’t back off within the next couple of meetings. The fear for investors and companies is the further Powell raises rates the worse a possible recession could be as economic conditions continue to tighten.
How much did the Fed raise rates by in 2022? (Scroll Down for Answer)
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2) 4.25%. The Fed raised rates by 4.25% in 2022 in an attempt to fight inflation. The Fed has acted aggressively after many believed they were late to raise rates causing inflation to spike.