Mid-Week Market Minute 2.8.23

Stocks Unchanged; Fed Chair Discusses Inflation

Stocks were relatively unchanged in choppy trade this week as investors digested corporate earnings alongside comments from the Federal Reserve on the central bank’s fight against inflation. On Tuesday, Fed Chair Jerome Powell gave a speech at the Economic Club of Washington, saying the stronger-than-expected labor market is going to make the inflation fight difficult. He noted the "disinflationary process" has begun but there is a "significant road ahead" to get inflation down. Powell reiterated the importance of the economic data, warning that surprisingly strong economic data could present challenges going forward. In response, markets now are pricing in two additional 0.25% (25 basis point) rate hikes for the remainder of the year, which would leave the federal funds rate at a target range of 5%-5.25% by early summer.

On the earnings front, more than half of S&P 500 companies have reported fourth-quarter results. Results have been mixed so far, but management commentary across various sectors continues to point toward higher input costs putting downward pressure on margins. On the economic front, it was a relatively light week. Mortgage applications for the week ended Feb. 3 rose to 7.4%, a drastic reversal from the prior week’s 9% decline. In addition, refinance demand surged 18% as interest rates dropped for the fifth consecutive week. Despite the recent uptick, activity on the housing front remains significantly lower than a year ago.

Source: GSAM, CNBC, JPMorgan

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