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Financial Market Update – Week of 02/06

February 6, 2023

Last week featured a mixed tone for the U.S. stock market indexes. We saw a blowout jobs number, perhaps indicating that Federal Reserve rate hikes have not cooled the economy enough to tame inflation. Prior to that, we also got the widely expected 25-basis-point rate hike from the Fed.

For the week, the S&P 500 increased by 1.62%, the Nasdaq 100 rose by 3.34%, and the Dow Jones Industrial Average tacked on 0.15%.

Fed Rate Hike

Markets expected a Fed rate hike, and the Fed delivered. Another 0.25% rate hike is now in the books. The latest rate hike takes the benchmark interest rate to a target range of 4.5%-4.75%, the highest since October 2007.

The rate hike was no surprise. But Federal Reserve Chair Jerome Powell added a new keyword to the statement, showing that the Fed expects “ongoing” increases to the key overnight lending rate. 

Ongoing. It is just a word. But when it comes to Fedspeak, it is that sort of keyword that gets market participants thinking about what the Fed may do next.

Big Jobs Number

Last Friday’s jobs report came in massively above expectations, showing 517,000 jobs created versus 183,000 expected. Wow.

At face value, giant job creation may seem bullish for the economy. In the current marketplace, however, it keeps the door open for further Fed rate hikes. Market participants will be digesting this data further this week, especially given Chair Powell’s “ongoing” keyword.

U.S. equity market indexes reacted to the downside on Friday after the data release, but in a rather muted and orderly fashion. We will see what this week holds. 

Speaking of the jobs number, how about this trader making a big trade right before the jobs data on Friday? That’s the stuff dreams are made of. I bet you this trader had a pretty good weekend!

Wild Government Bond Yields

On Thursday, the 10-year yield fell below 3.35% intraday, representing the lowest yield since September 2022. 

The rather large move lower in yields was short-lived and rose on Friday’s jobs number with the prospect of a more hawkish Fed and potentially more interest rate hikes on the table.

10-year yields settled at 3.531% on Friday.

Gasoline, Oil Fall

Crude oil has been falling since mid-2022. As a result, gasoline has been falling, too, with regular gas averaging the $3.470 level as of Monday morning, according to AAA. Travelers and drivers love to see it.

July crude oil futures fell hard last week by 7.89%, settling at $73.39 per barrel. After the jobs data last Friday, many other commodities also fell, and the U.S. dollar gained steam.

The Takeaway

The market gives clues, and we listen. Last week’s message is still under interpretation as of Monday morning. 

The Fed warned us that rate hikes will be “ongoing.” And Friday’s massive increase in jobs leaves the door open for the Fed to continue its rate hike campaign to cool inflation, differing from the consensus before the jobs data release.

The market reaction after the jobs data was only slightly to the downside on Friday. Now, market participants will debate if the huge jobs gain means more Fed rate hikes after the March Fed meeting. Time will tell. Sentiment could shift back to a pre-January tone in the short term, but anything is possible at present. 


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