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Stock Market News for Feb 1, 2023

U.S. stock markets closed sharply higher on Tuesday as market participants were assessing the outcome of the Fed’s first FOMC meeting of 2023. Favorable inflation data also boosted investors’ sentiment. All three major stock indexes ended in positive territory. For the month as a whole, these indexes performed impressively finishing in the green.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) surged 1.1% or 368.95 points to close at 34,086.04. Notably, 26 components of the 30-stock index ended in positive territory while 4 in negative zone. The tech-heavy Nasdaq Composite finished at 11,584.55, jumping 1.7% or 190.74 points due to strong performance of large-cap technology stocks.

The major gainer of the Nasdaq Composite was Lam Research Corp. LRCX as its stock price advanced 4.5%. Lam Research carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The S&P 500 gained  1.5% to end at 4,076.60. All 11 broad sectors of the benchmark index closed in positive territory. The Consumer Discretionary Select Sector SPDR (XLY) and the Materials Select Sector SPDR (XLB) were up 2.3% and 2.2%, respectively.

The fear-gauge CBOE Volatility Index (VIX) was down 2.7% to 19.40. A total of 12 billion shares were traded on Tuesday, higher than the last 20-session average of 11.40 billion. Advancers outnumbered decliners on the NYSE by a 4.91-to-1 ratio. On Nasdaq, a 3.12-to-1 ratio favored advancing issues.

Central Banks to Continue Hiking Rates

Market participants are currently pricing in the fact that albeit by a mere 25 bps, interest rates are only going to go up, and not down, if things go along expected lines at the conclusion of the Fed February meeting on Wednesday. Rather than any major macroeconomic factors, the recent buoyant mood seen in trade can be accredited to a slowdown in the economy, which has led investors to hope that the Fed might take cognizance and stop further tightening of the economy.

Apart from the Fed, other major central banks like the Bank of England and the European Central Bank are also expected to raise rates on Wednesday. These European counterparts of the Fed are not expected to step off the pedal, as expectations are they would hike rates by 50 bps.

Peak Inflation Seems Behind Us

The Department of Labor reported that the employment cost index for fourth-quarter 2022 rose 1% compared with the consensus estimate of 1.2%. The metric for third-quarter 2022 was also 1.2%. Year over year, the employment cost index jumped 5.1% in 2022 compared with 5% in 2021. The recent data clearly indicates that wage rate, a major source of current inflation is declining as expected by the Fed. Moreover, several measures of inflation of October to December of 2022 have shown that peak inflation is behind us.

Economic Data

The S&P CoreLogic Case-Shiller national index reported that home prices fell 0.6% in November and up 9.2% year over year. The 20-city price index fell a seasonally adjusted 0.5% in November, marking the fifth consecutive monthly decline. However, the index rose 8.65 in November compared with 10.4% in October.

The Conference Board reported that consumer confidence fell to 107.1% in January compared with the consensus estimate of 10.95%. December’s data was revised upward to 109% from 108.3%.

The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—increased to 150.9% in January from 147.4% last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell to 77.8% from 83.4% in December. Notably, the Expectations Index of below 80% often signals a recession within the next year.

Monthly Roundup

Wall Street starts 2023 with a sold rally. The three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – appreciated 2.8%, 6.2% and 10.7%, respectively. The Dow and the S&P 500 closed their third positive months in four. The S&P 500 posted best January since 2019. The Nasdaq Composite ended best month since July and best January since 2001.

Favorable data regarding several measures of inflation, various soft economic data and a resilient labor market raised market participants’ hope for a soft landing of the U.S. economy.

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