Investment Commentary – January 31, 2023
Year to Date Market Indices as of January 31, 2023

• Dow 34,086 (2.8%)
• S&P 3,855 (6.13%)
• NASDAQ 10,915 (10.6%)
• OIL $85.12 (-1.74%)
• Barclay Bond Aggregate (3.3%)
• Gold (6.21%)

Fed set to slow interest rate hikes again as inflation cools
Federal Reserve to continue inflation fight with 25-basis-point interest rate hike

“Our focus right now is really on moving our policy stance to one that is restrictive enough to ensure a return of inflation to our 2% goal over time,” Powell told reporters. It’s not on rate cuts. And we think that we’ll have to maintain a restrictive stance of policy for some time.”

The Federal Reserve is set to downshift its pace of interest rate increases again at its first meeting of the year this week amid growing signs that stubbornly high inflation is finally starting to cool.

The U.S. central bank is widely expected to lift the federal funds rate by 25 basis points at the conclusion of its two-day meeting on Wednesday – slowing the size of the increase for the second straight meeting.

The move would set the federal funds rate between 4.5% to 4.75%, further restricting economic activity as the borrowing costs for homes, cars and other items march higher. It would mark the highest rate level since 2007.

Policymakers projected a peak rate of 5% in December.

Fed Chairman Jerome Powell confirmed in December that smaller rate hikes are on the table this year amid signs that the central bank’s aggressive tightening campaign is slowing the economy and bringing inflation under control. However, he said policymakers have more work to do on the inflation front before pausing and that rates may need to stay elevated for “some time.”

“I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed,” Philadelphia Fed President Patrick Harker said last week. “Hikes of 25 basis points will be appropriate going forward.”


Market-moving news

Inflation easing: The U.S. Federal Reserve’s preferred gauge for tracking inflation showed a further cooling of price increases. The government reported on Friday that its Personal Consumption Expenditures Price Index rose at an annual 5.0% rate in December, down from 5.5% in November. Excluding food and energy, prices rose at a 4.4% annual rate—the lowest in 14 months.

GDP momentum: U.S. economic growth remained in solidly positive territory in the fourth quarter of 2022, marking its second positive result after slightly negative numbers in the first two quarters of last year. GDP grew at an annualized rate of 2.9% in the latest period, beating most economists’ expectations. For full-year 2022, GDP rose 2.1%, easing concerns about the prospects of a protracted recession.

Growth’s comeback: For the third week in a row, a U.S. large-cap growth stock benchmark outperformed its value counterpart by a wide margin, reversing the trend from 2022, when the value equity style dominated. Over the past three weeks, the growth benchmark gained 7.9% while its value counterpart added 2.1%.

Back on track: The NASDAQ surged more than 4% for its fourth positive weekly result in a row while the S&P 500 and the Dow posted smaller gains, rebounding from declines the previous week. With a couple trading days left in January, the NASDAQ was on track to record its strongest monthly result since last July.


The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments. (Market Indices) (Around the Web & Upcoming Events) (YTD Performance Chart)