Morning Bid: Flirting with records as Fed rates finally fade

Fed to conclude rate hikes in March; markets flirt with records

Good morning. Wall Street is on the brink of setting new records as investors welcome signs that the Federal Reserve is preparing to end its rate-hiking cycle after the first quarter of the year. After raising rates eight times in the past year, policymakers at the U.S. central bank are expected to approve one last quarter-point increase next month, according to CME Group data.

Fears that the Fed would continue raising rates far into 2024 have weighed on the equity markets over the past year, and their removal has spurred a January rally that has seen the Nasdaq Composite and S&P 500 indexes rise 9% and 6%, respectively. “The market has been flirting with all-time highs for the last six to eight weeks,” says Michael Reynolds, vice president of investment strategy at Glenmede. “It usually doesn’t feel good when you’re at all-time highs, but it’s because people expect rates to pause for the rest of the year.”

On Wednesday the Nasdaq Composite rose 0.7%, and the S&P 500 added 0.3%. The Dow Jones Industrial Average slipped 0.2%.

Consumer spending remains resilient

The strength of the U.S. consumer continues to surprise economists, according to the Commerce Department, which said that consumer spending jumped 1.8% in December, well above the 1.3% forecast by economists surveyed by Dow Jones.

The robust holiday spending suggests that the economy is not as weak as some investors had feared, perhaps providing cover for the Fed to wrap up its rate hikes sooner rather than later. “We think this pretty much closes the book on consumer spending in 2022,” says Reynolds. “It was a surprisingly strong finish to the year and just confirms that, despite all of the Fed’s efforts to weaken demand, consumers are still in pretty good shape.”

Looking ahead

This week’s economic calendar is fairly light, with durable goods orders for December set to be released on Thursday and the latest personal income and spending figures due out on Friday.