Stocks came off session highs, with traders assessing the latest remarks from Federal Reserve officials for clues on whether they will be able to slow the pace of rate hikes any time soon.
(Bloomberg) — Stocks came off session highs, with traders assessing the latest remarks from Federal Reserve officials for clues on whether they will be able to slow the pace of rate hikes any time soon.
The S&P 500 pared gains after Fed Bank of San Francisco President Mary Daly said she expects the central bank to raise rates to somewhere above 5% before pausing, though the ultimate level is unclear. Her Atlanta counterpart Raphael Bostic noted that policymakers should hike above 5% by early in the second quarter and then go on hold for “a long time.”
Traders are also eagerly awaiting the US CPI report that will come out nearly a week after the latest jobs data showed that wage growth has decelerated. The figures will be among the last such readings policy makers will see before their Jan. 31-Feb. 1 gathering.
If last week was any guide, two of the main market drivers in 2022 — inflation and the Fed’s response to it — will continue to exert their influence this year, according to Chris Larkin at E*Trade from Morgan Stanley.
“With all eyes on this week’s CPI report, corporate earnings season, and next month’s Fed meeting, we expect volatility to return, though the pendulum is more likely to swing from negative to positive given near-universal levels of pessimism,” said Mark Hackett, chief of investment research at Nationwide. “Investors should avoid overreacting to large market moves as elevated volatility is our new normal.”
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Morgan Stanley’s Michael Wilson said that while investors are generally pessimistic about the outlook for economic growth, corporate profit estimates are indeed still too high. That suggests the S&P 500 could fall much lower than the 3,500 to 3,600 points the market is currently estimating in the event of a mild recession, he said.
Still, the rising threat of an economic recession has done nothing to dissuade Corporate America from spending big on its own shares. American firms announced a record $1.26 trillion of buybacks in 2022, up 3% from a year ago, according to data compiled by Birinyi Associates.
Elsewhere, oil rallied on hopes of renewed Chinese crude buying and as the dollar extended its decline. Brazilian assets — already being shunned by investors — underperformed on Monday amid fears of political instability in Latin America’s largest economy.
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Key events this week:
- US wholesale inventories, Tuesday
- Fed Chair Jerome Powell among speakers at Riksbank symposium in Stockholm, Tuesday
- World Bank expected to release global economic prospects report, Tuesday
- ECB Governing Council members speak at Euromoney conference in Vienna, Wednesday
- US CPI, initial jobless claims, Thursday
- St Louis Fed President James Bullard at Wisconsin Bankers Association virtual event, Thursday
- Richmond Fed President Thomas Barkin speaks at VBA/VA Chamber, Thursday
- China trade, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan Chase, Wells Fargo report earnings, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.6% as of 1:41 p.m. New York time
- The Nasdaq 100 rose 1.7%
- The Dow Jones Industrial Average was little changed
- The MSCI World index rose 1.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.7%
- The euro rose 0.9% to $1.0745
- The British pound rose 0.8% to $1.2187
- The Japanese yen rose 0.2% to 131.80 per dollar
Cryptocurrencies
- Bitcoin rose 2.2% to $17,336.57
- Ether rose 5.2% to $1,335.24
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.53%
- Germany’s 10-year yield advanced two basis points to 2.23%
- Britain’s 10-year yield advanced five basis points to 3.53%
Commodities
- West Texas Intermediate crude rose 1.5% to $74.91 a barrel
- Gold futures rose 0.4% to $1,876.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric, Isabelle Lee and Peyton Forte.
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