Last Updated 4:05 PM EST
Stock indices finished today’s trading session in the green. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 gained 0.56%, 0.7%, and 0.88%, respectively.
The consumer staples sector was the session’s laggard, as it lost 0.12%. Conversely, the communications sector was the session’s leader, with a gain of 1.51%.
Furthermore, the U.S. 10-Year Treasury yield increased to 3.61%, an increase of more than seven basis points. Similarly, the Two-Year Treasury yield also increased, as it hovers around 4.24%.
The Atlanta Federal Reserve updated its latest GDPNow reading, which allows it to estimate GDP growth in real time. The “nowcast” becomes more accurate as more economic data is released throughout the quarter. Currently, it estimates that the economy will expand by about 4.1% in the fourth quarter.
This is higher than its previous estimate of 3.8%, which can be attributed to recent releases from the U.S. Census Bureau, the Institute for Supply Management, and the U.S. Bureau of Labor Statistics.
Nevertheless, inflation continues to be a problem around the world. Therefore, it’ll be interesting to see what the actual GDP growth will be and how it’ll change going forward as higher rates start to impact the economy.
Last Updated 2:55PM EST
Stocks are in the green heading into the final hour of today’s trading session. As of 2:55 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are up 0.3%, 0.4%, and 0.6%, respectively. This comes as stocks had initially struggled to find direction earlier on in the trading as a result of Powell’s speech.
Last Updated 11:58AM EST
Equity markets remain little changed halfway into the trading session as investors try to digest Powell’s speech and the implications of higher interest rates. Higher borrowing costs have a large impact on small businesses, which make up a large portion of the U.S. economy.
On Tuesday, the National Federation of Independent Business (NFIB) released its Small Business Optimism Index for the month of December. As the name suggests, it is a survey that measures the level of optimism among small businesses.
In December, the index fell by 2.1 points to a level of 89.8. As a result, it has remained below its 49-year average of 98 for the last 12 months. In addition, 32% of small business owners cited inflation as their single largest concern related to operations.
As a result, a net 43% of businesses in the survey said they plan to raise prices. Of the small businesses that saw lower profits, 30% attributed the decline to higher material costs, while 12% pointed to labor costs. Weaker sales made up 24% of the blame.
This data highlights that consumer spending is still strong since 76% of respondents who saw a decline in profits didn’t blame weaker sales. However, it demonstrates the impact that inflation has on profitability, as the higher revenue figures actually led to operating deleverage, meaning that earnings didn’t grow faster than sales.
Last updated: 9:40 AM EST
Markets opened mixed on Tuesday as investors remained concerned about higher interest rates after Fed Chairman Jerome Powell’s speech in Sweden. Powell made it clear that the Fed needed to make some tough decisions to control high inflation that could be unpopular politically.
The Dow Jones Industrial Average (DJIA) was up 0.2% while the S&P 500 (SPX) inched down 0.08%, as of 9:40 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) gained 0.3%.
Last updated: 7:24AM EST
Stock futures were lower than parity on Tuesday morning as the fear of higher interest rates kept investors tense.
Futures on the Dow Jones Industrial Average (DJIA) slid 0.41% while those on the S&P 500 (SPX) inched down 0.38%, as of 7:10 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.01%.
At market close on Monday, the S&P 500 and the Dow ended 0.08% and 0.34% lower, while the Nasdaq 100 advanced 0.62%. A 6% rally in Tesla (NASDAQ:TSLA) led the Nasdaq 100’s gains on reports of it being officially oversold.
Interestingly, on Monday the S&P 500 closed the first five trading days of 2023 with 1.1% gains, indicating, according to historical trends, that the rest of the year could go well for the index.
Fed Officials Reiterate Continued Tightening
Atlanta Federal Reserve President Raphael Bostic spoke on Monday, reiterating that the interest rates will go up to about 5% and stay there for a “long time,” sparking a fresh wave of worry in the market. Additionally, San Francisco Fed President Mary Daly mentioned that the central bank will continue to raise interest rates at a slower pace. In response to these comments, the U.S. Treasury yields rose slightly, pressing on stocks.
Importantly, Fed Chair Jerome Powell is scheduled to speak at 9 a.m. ET, Tuesday. As a recession becomes increasingly inevitable, investors are anxiously waiting for any ray of hope from the speech today that the Fed might be able to pull off a soft-landing. Hopes are still pinned on the fact that inflation appears to be easing.
Inflation Data Might Be a Short Relief
Staying on that thought, December’s Consumer Price Index data is set to be released on Thursday, and is the most anticipated event this week. As much as investors are hoping for another month of deflation, it should be remembered that the labor market has still not desirably slowed and hence, is still feeding inflation. It is likely that the Fed will not pivot until the unemployment rate reaches around 5% (it fell from 3.7% to 3.4% in December).
Also, inflation is still very far from the Fed’s target rate of 2%-3%, which makes it practically impossible to look for a pivot this year.
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