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Wall Street Has a Lot Riding on the Fed’s Rate Decision
Stocks and bonds are on an impressive run so far this year, driven by hopes the Federal Reserve will slow down, or even pause, its interest rate increases.
By Andrew Ross Sorkin, Ravi Mattu, Bernhard Warner, Sarah Kessler, Michael J. de la Merced, Lauren Hirsch and Ephrat Livni
Feb. 1, 2023, 8:12 a.m. ET

Investors brace for decision day
After last month’s stock run for the ages, market watchers will look closely at what the Fed does on Wednesday with interest rates, hoping that Jay Powell and his colleagues don’t pour cold water on the rally.

Markets expect the Fed to raise the prime lending rate by 25 basis points, bringing it to a new target range of 4.5 to 4.75 percent. That would mark “the first ‘normal’ sized hike since March 2022,” when the central bank began its big anti-inflation push, the Deutsche Bank analysts Jim Reid and Henry Allen wrote to investors this morning.

The big question is what comes down the line. Investors will parse the forthcoming announcement by the Fed’s Federal Open Market Committee for signs of an approaching slowdown, or even pause, in interest rate increases. The key word is “ongoing” — as in, whether the committee still feels that “ongoing increases” in interest rates are necessary given signs in recent data that inflation is cooling.

For investors, that data has been a signal to buy. The U.S.’s three major stock indexes rose on Tuesday, after stats showed that wages were moderating even as hiring remained strong. Tuesday’s data was enough to push the S&P 500 to a two-month high, as investors anticipated the Fed might ease up on rate increases.

Some milestones from the January markets rally:

The tech-heavy Nasdaq gained 11 percent last month, its best start to a year since 2001. (Then again, that turned out to be a rough year for tech, particularly dot-com stocks: BNP Paribas analysts pointed out that the Nasdaq ended 2001 down over 50 percent.)

Big winners last month included the online auto dealer Carvana, which jumped 119 percent despite the end of a used-car boom, and Cathie Wood’s tech-heavy Ark Innovation exchange traded fund, whose 27.9 percent gain made January its best month ever. Both suffered last year as the Fed began raising rates and markets worried about an upcoming recession.

Cryptocurrencies also roared back, in another sign that investors are flocking to risky assets. Bitcoin was up 38.6 percent and Ethereum 31.2 percent.

Bonds also did well, as U.S. Treasuries gained 2.8 percent, according to Deutsche Bank.

The S&P 500’s 6.4 percent gain achieved the so-called “January Indicator Trifecta,” a trio of measures that in the past has been a “super bullish” indicator for the year ahead.

European stocks also did well, with the Pan-European Stoxx 600 outperforming the S&P 500 last month. Investors will be focused on tomorrow’s rate decisions by the European Central Bank and the Bank of England; both are seen as being more aggressive than the Fed in raising rates.

https://www.nytimes.com/2023/02/01/business/dealbook/markets-fed-rates-stocks-bonds.html

Look for Jamie Dimon to walk back his doom and gloom recession remarks.