(RoyalPatriot.com )- February ended with a whimper for the stock market on Tuesday, with all three of the major indexes in the U.S. ending lower than they started the month.
Investors are showing with their trading decisions that they’re unsure of how to assess interest rates, inflation and the overall economy. It’s uncertain, many have said, whether the Federal Reserve will continue to increase interest rates throughout 2023, or whether they will start to come down in the near future.
Stocks started out 2023 strong, but retreated a lot in February. The downward move came after officials with the Federal Reserve sounded skeptical tones in recent comments and as economic data showed poor performance in the first month of the year.
Investors, as a result, seemed to reconsider whether the Fed would end up hiking interest rates to a level that was higher than many market forecasts had previously projected, keeping them at elevated levels for a longer period of time than many expected.
Allianz Investment Management’s head ETF market strategist, Johan Grahn, commented:
“The market in many ways expected things to go south more quickly, forcing the Fed to pivot, or pause, or cut rates sooner than the Fed was saying. The staying power of the Fed is much more determined and steadfast than the staying power of investors, so it’s back to the old mantra of do you really want to fight the Fed on this, and in this case, it is still a mistake to try and do that.”
Preliminary data shows that the Dow Jones Industrial Average dropped 0.75% during February, losing 246.76 points. The Nasdaq Composite dropped 0.10%, losing 1183 points. And the S&P 500 dropped 0.33%, losing 12.96 points.
Investors are now seeming to price in the belief that the Fed will institute a 50-basis point increase in the benchmark interest rate when they next meet in March. Fed fund futures, though, still show the chances of that happening to be 23%.
That metric predicts that rates may peak in September at 5.4%, an increase over the current rate of 4.57%.
Some financial firms such as BofA Global Research also caution, though, that the central bank could increase interest rates even higher, to almost 6%, sometime this year.
The Dow dipped in February on the backs of a drop in the price of Goldman Sachs, after David Solomon, its chief executive, said that his bank would be considering “strategic alternatives” in the consumer business it has.
Volatility in the stock market has become rather commonplace ever since the Fed started to hike interest rates on a consistent basis last year. In 2023 thus far, the S&P 500 has experienced 18 different sessions that had either losses or gains of 1% at least. That equals the number of days that happened in the first two months of 2022, a year in which that happened during 122 trading days.