Steadier Rates, Steadier Stock Market

Articles From: Briefing.com
Website: Briefing.com

By:

Chief Market Analyst

The stock market had a tough day on Tuesday. It hasn’t had many tough days in 2023, though, and it has had even fewer, back-to-back tough days.

At the moment, the market is holding its ground. The S&P 500 futures are up eight points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 36 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 57 points and are trading 0.2% above fair value.

Those are not robust indications, yet they are tipped in favor of a modestly higher open.

Some steadying action in the Treasury market, some speculative buy-the-dip interest, and some supportive remarks about the economy from a Fed official have the stock market in a little bit better mood so far today.

Briefly, St. Louis Fed President Bullard (non-FOMC voter) told CNBC earlier that the U.S. economy has been stronger than the Fed thought it would be and that he thinks the market may be overpricing the risk of recession in the second half of 2023.

He said this after acknowledging that he thinks the fed funds rate should be at 5.375% before the Fed pauses to assess things. 

There was some improvement in the futures market after his remark that the market may be overpricing the risk of recession, yet the market tempered its enthusiasm for that view knowing that he also advocated for a higher, and more restrictive, fed funds rate that will ultimately slow both economic and earnings growth.

Market participants will get some added insight on the Fed’s thinking when the minutes from the Jan. 31-Feb. 1 FOMC meeting are released at 2:00 p.m. ET. It is important to note that this meeting took place before the much stronger-than-expected January employment report and the less-than-pleasing CPI and PPI reports for January.

Accordingly, the market should be more sensitive to views in the minutes that emphasize a need to take rates higher, and leave them at higher levels for longer, than it is to views with a softer-sounding approach.

The 2-yr note yield is down five basis points to 4.68% and he 10-yr note yield is down two basis points to 3.94%. The 6-month T-bill yield, however, is up eight basis points to 5.10%.

Interest rate moves will remain a key driver of stock prices. Those moves today are less challenging so far than they were yesterday, so the equity futures are in a less challenging position than they were before yesterday’s open.

Originally Posted February 22, 2023 – Steadier rates, steadier stock market

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