Wall Street continued its rally after the new year. This is how the most important indicators looked at the close of trading on the New York Stock Exchanges on Wednesday:
- The S&P 500 Collective Index, made up of the 500 largest companies listed in the United States, rose 1.28 percent.
- The Nasdaq Composite Index, dominated by technology companies, rose 1.76 percent.
- The Dow Jones Industrial Average, which is made up of 30 handpicked and supposedly important stocks, rose 0.8 percent.
Inflation hopes to lift technology
The big news of the week is published on Thursdays. Then comes measurements of price growth in the US economy. According to Trading Economics, headline inflation is expected to decline from 7.1 percent in December to 6.5 percent, while core inflation will drop from 6.0 percent to 5.7 percent.
In this case, he will be able to restrain the US Central Bank (“Federal Reserve”), which sharply raised the main interest rate in an attempt to stop price growth. Right now, the market is pricing the key rate to peak at around 4.9 percent in the summer, while the Fed has indicated a peak rate of around 5.1 percent – and factoring in that it could be even higher.
Matthew Palazzolo, an investment strategist at Bernstein Private Wealth Management, still thinks it’s hard to try to time the Fed.
There is some indication that when the Fed starts cutting interest rates, it will improve the markets. But it’s very difficult to say whether that will happen in 2024 or the end of 2023 now in the middle of January.
And the Tek shares that led the way on Wednesday were also the ones that fell the most when interest rates started to rise. On Wednesday, tech giants such as Google owner Alphabet and Apple rose.
Tesla, which sank on Tuesday, recovered this and then that. The electric vehicle manufacturer is up more than 13 percent since the new year.
It is believed that the “most important number of the month” has deteriorated
Investors, otherwise, are closely watching the tight labor market going forward, because they know the Fed is doing the same thing — looking for signs of how wage growth will affect inflation. If the labor market is very tight, with very low unemployment and a high demand for labor, the idea is that the labor market will lead to higher wage growth. The fear is that higher wage growth will lead to higher prices, which in turn will be offset by higher wages—the wage and price spiral.
The US unemployment numbers are often referred to as the “most important number of the month” for this reason. But:
Inflation measures have become the most important data from authorities, even outpacing monthly jobs numbers, chief strategist Arthur Hogan at B. Riley Wealth tells Bloomberg.
The labor market report presented on Friday last week showed that unemployment decreased slightly to 3.5 percent. Even though unemployment is at its lowest level in decades and there is still a sea of job vacancies in the US, wage growth was measured at 4.6 percent, a drop from the previous month. In advance, a salary increase of five percent was expected.
the highest since the financial crisis
The interest rate on 10-year US government bonds, often referred to as the most important interest rate in the world, is now close to 3.6 percent. It has fallen somewhat since its peak in November 2022 when it was more than four percent, but in one year the interest rate has gone from 1.5 percent to the current level.
The last time the interest rate reached today’s levels was during the financial crisis in 2008.
The 10-year nominal interest rate can be “dissected” by looking at what is due to increased inflation expectations and what is a consequence of increased interest rate expectations. What you’re seeing is that the rise in the nominal ten-year rate in the last two years has been driven almost exclusively by an increase in the real ten-year rate.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For additional terms look here.
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