Wall Street rebounded and closed January strongly in advance of the Federal Reserve’s decision on interest rates

Workers at the New York Stock Exchange (REUTERS/Andrew Kelly) (ANDREW KELLY/)

Wall Street closes out a strong January with more gains on Tuesday, awaiting what many investors expect to be one of the recent interest rate hikes by the Federal Reserve for a while.

Shortly before the close, the S&P 500 was up 1.5% and was on pace to close its winning third month in four. The Dow Jones Industrial Average rose 1.1 percent and the Nasdaq rose 1.7 percent.

Markets got a boost after a report showed growth in wages and the benefits of American workers slowed down by the end of 2022. While that’s frustrating for people trying to keep up with higher prices for eggs and other groceries, markets see it as a encouraging sign pressure relief on the inflation.

With the pace of inflation cooling since the summer, virtually all of Wall Street expects the Federal Reserve to announce its lowest rate hike since March, of 0.25 percentage points. It would be the latest reduction after four consecutive increases of 0.75 points and one increase of 0.50 points.

These types of measures try to end inflation intentionally slowing down the economy and dragging down the prices of shares and other investments. The concern is that rates that are too high will cause a severe recession and a drop in corporate profits.

FILE PHOTO: The Wall Street entrance to the New York Stock Exchange (REUTERS/Brendan McDermid)
FILE PHOTO: The Wall Street entrance to the New York Stock Exchange (REUTERS/Brendan McDermid) (BRENDAN MCDERMID/)

These concerns, combined with hopes for a more accommodating Federal Reserve, have led to strong oscillations in the markets recently. They have affected not only the day to day, but also the hourly. Analysts say much of the gains this past month have been due more to improving investor sentiment than a big improvement in the economy or earnings.

“As long as the Federal Reserve keeps raising interest rates, there will be volatility in the market,” says Mary Ann Bartels, chief investment strategist at Sanctuary Wealth. “This is a market that is very bipolar“, said. “And that’s healthy for a market. You don’t want a bias that is too bullish,” or optimistic, and you “don’t want a bias that is too bearish,” or pessimistic. “I think we are balancing the extreme downtrend of the market.”

In his opinion, values ​​will continue to rise throughout the year, led in particular by companies energetic and industrialalthough this can be hidden by simply looking at market indices like the S&P 500, as these stocks represent a relatively small part of the market.

It seems that everyone agrees on what the Federal Reserve will do on Wednesday, but the big question is what it will do next. So far, the Fed has promised to keep rates higher for longer to ensure that inflation is truly beaten. The markets, for their part, remain hopeful that there will be a small increase in March and that the rate cuts will take place at the end of the year.

Other economic data was released on Tuesday lower than expected, which could give the Federal Reserve room to be less harsh on rates. The consumer confidence index weakened in January, when economists expected it to hold steady. For its part, business activity in the central region of the US weakened more than expected in January.

Treasury yields fell immediately after the release of the labor cost report, before easing their declines. The 10-year Treasury yield, which helps set interest rates on mortgages and other loans, fell to 3.53% from 3.54% on Monday. The two-year yield, which moves more in line with Federal Reserve expectations, fell to 4.21% from 4.24%.

The earnings season is also in full swing, with McDonald’s and other large companies at the head of the day. The results were uneven, as they have been so far this season.

caterpillar it fell 3.9% after posting weaker-than-expected earnings but higher revenue.

On the winning side stood General Motorswhich rose 7.7% after posting higher-than-expected earnings and revenue.

Asian stock markets closed mostly lower and European ones mixed.

(With information from AP)

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