Stocks almost flat as S&P 500 struggles near 3,900
2 min read 10 Jan 2023, 08:06 AM ISTA rally in stocks fizzled out after two Federal Reserve officials signaled that interest rates could top 5%, throwing some cold water on several traders who saw a peak below that mark.
PremiumA rally in stocks fizzled out after two Federal Reserve officials signaled that interest rates could top 5%, throwing some cold water on several traders who saw a peak below that mark.
The S&P 500 struggled to stay above the key 3,900 level after an advance that reached almost 1.5% earlier in the session. The Dow Jones Industrial Average underperformed, while the Nasdaq 100 remained higher thanks to a rally in big tech, with Tesla Inc. surging about 6%.
Fed Bank of San Francisco President Mary Daly said she expects the central bank to raise rates to somewhere over 5%. Her Atlanta counterpart Raphael Bostic noted that policymakers should hike above 5% by early in the second quarter and then go on hold for “a long time."
Investors also awaited Thursday’s US CPI report that will come out nearly a week after the latest jobs data showed that wage growth has decelerated. The figures will be among the last such readings policy makers will see before their Jan. 31-Feb. 1 gathering.
“In addition to the probability of interest rates remaining high and a possible economic slowdown, any bullishness triggered by slowing inflation may be offset by stocks still-high valuations and overly optimistic earnings expectations," said Chris Larkin at E*Trade from Morgan Stanley. “It could be a recipe for choppy near-term and long-term trading as traders prepare this week for their first look at earnings and inflation data of 2023."
“With all eyes on this week’s CPI report, corporate earnings season, and next month’s Fed meeting, we expect volatility to return, though the pendulum is more likely to swing from negative to positive given near-universal levels of pessimism," said Mark Hackett, chief of investment research at Nationwide. “Investors should avoid overreacting to large market moves as elevated volatility is our new normal."
Morgan Stanley’s Michael Wilson said that while investors are generally pessimistic about the outlook for economic growth, corporate profit estimates are indeed still too high. That suggests the S&P 500 could fall much lower than the 3,500 to 3,600 points the market is currently estimating in the event of a mild recession, he said.
Still, the rising threat of an economic recession has done nothing to dissuade Corporate America from spending big on its own shares. American firms announced a record $1.26 trillion of buybacks in 2022, up 3% from a year ago, according to data compiled by Birinyi Associates.
Elsewhere, the MSCI Emerging Markets Index was set to enter a bull market after surging over 20% from its October low. The dollar slumped against most of its major peers and headed toward its weakest since June. Treasury 10-year yields also retreated, approaching 3.5%.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.
