Week of January 30, 2023

All three major indices posted positive returns last week and are on pace for a positive first month of 2023. For the week, the Dow rose 1.87% and the S&P 500 added 2.47%. The tech-heavy Nasdaq had the best week, adding 4.32%. The winning week was fueled by a better-than-expected GDP and personal consumption expenditures (PCE) reports, which sparked investor hopes of a potentially more aggressive slowdown from the Federal Reserve (Fed).

Wall Street is in for a busy week. Big tech leaders report earnings, the Fed meets 1/31 – 2/1, and the January jobs reports is released on Friday. At the conclusion of the Fed’s meeting on Wednesday, they are expected to announce the next interest rate increase. The market is pricing in a 99.8% probability of a 25-basis point (bps) increase, which would take the federal funds target rate range to 4.5% to 4.75%. This would be another step down after a 50-bps increase in December, which followed four straight 75-bps increases.

The Fed will continue its mission of slowing to economy without tipping it into recession (i.e, a soft landing). “As the FOMC gathers for the first time in 2023, it will face a difficult challenge: how to communicate a desire to maintain a sufficiently restrictive monetary policy stance while avoiding the risk of overtightening,” said EY Parthenon chief economist Gregory Daco.