• February 1, 2023

Fed Raises Rates Another 25 Basis Points—Signals More Hikes Still To Come

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Topline

With the S&P 500 surging 17% since a low point in mid-June, big names like Ford, Tesla and Netflix have been among the top gainers, while several energy and consumer stocks have slumped despite the broad stock market rebound in recent months.

Key Facts

The benchmark S&P 500 index has erased most of its losses from a brutal selloff in the first half of the year, jumping 17% since the market’s low point on June 16 and recently posting four straight weeks of gains.

Stocks have rebounded in recent weeks thanks to growing optimism that inflation may have peaked after consumer prices cooled in July, adding to hopes that the Federal Reserve will scale back its aggressive rate-hiking campaign and tightening of monetary policy.

The top-performing stocks in the S&P 500’s rally since June 16 are solar power components provider Enphase Energy and e-commerce company Etsy, rising 75% and 65% during that period, respectively.

Several software companies saw big gains as well, with the likes of Epam Systems rising 57%, payroll services provider Paycom 49% and cloud networking company Arista Networks 46%.

Some well-known names have also rallied significantly in the last couple of months, including legacy automaker Ford (up 45%), electric-vehicle maker Tesla (up nearly 43%) and streaming giant Netflix (up 41%).

Other notable gainers in the S&P 500 include burrito-chain Chipotle and digital payments giant PayPal—both rising roughly 39%, as well as big tech giants Amazon and Apple, up 37% and 34%, respectively.

Surprising Fact:

Just 20 stocks in the S&P 500 have fallen by more than 2% during the bear market rally since June 16, according to Bloomberg data.

What To Watch For:

The worst-performing stocks in the S&P 500 since the market’s low point this year are Colorado-based gold mining company Newmont, down nearly 31%, and oil field service company Baker Hughes, down 15%. Several energy companies have led the market’s declines amid a decline in oil prices, which have fallen from a peak of around $120 per barrel in early June to roughly $90 per barrel today. Apache Corp. parent-company APA Corp has fallen over 13%, while Halliburton is down more than 11%, Phillips 66% more than 7% and Marathon Oil 4%. Several consumer-focused stocks also registered declines, including Tinder-parent Match Group (down nearly 11%), Verizon (down 8%), Walgreens Boots Alliance (down 3%) and Johnson & Johnson (down 2%).

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Key Background:

A host of better-than-expected economic data for July—including a strong jobs report and cooling in consumer prices—has added to investor optimism about a potential peak in inflation. Many traders are subsequently growing more hopeful about a looming Fed pivot—where the central bank pulls back from its aggressive tightening of monetary policy—though several experts are warning that recent market gains are nothing more than a bear market rally. The Fed is planning more big rate hikes ahead until there is a meaningful decline in inflation, indicating that it will “take some time” before a reversal in monetary policy, according to minutes from the central bank’s latest policy meeting. Despite growing optimism among investors, many Wall Street analysts argue that more evidence of a slowdown in inflation is required before the Federal Reserve can scale back or reverse the pace of rate hikes and monetary tightening.

Crucial Quote:

“Stocks will most likely struggle for direction for the rest of the summer as Wall Street is still uncertain with how aggressive the Fed will be in September,” predicts Edward Moya, senior market analyst at Oanda. Traders are almost evenly split on whether the Fed will raise rates by another 75 basis points or a smaller 50-basis-points at its next meeting, according to CME Group data.

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