Wall Street's Feel-Good Start to 2023 Sets Up Perilous Fed Day

Once-hated world stocks, bonds laced with interest-rate risk and even deadbeat crypto coins have just closed out a big new-year rally.

Now Wall Street is wondering how Jerome Powell will react.

Even as the Federal Reserve looks poised to deliver a tough message Wednesday in favor of restrictive monetary policy, money managers are unleashing speculative bets on a soft economic landing — a volte-face from the great 2022 bear market.

Tuesday gave traders fresh ammo to drive up the price of risk assets, on the back of softer wage growth data that adds to the case the central bank may pause tightening or even reverse course.

The S&P 500 closed on a high note, ending January with a 6% gain — the best start to a year since 2019. The once-beaten down Nasdaq 100 jumped more than 10% in a January rebound unseen in more than two decades.

The spirited market revival runs counter to growth angst in Treasuries and falling corporate-earnings estimates — while complicating efforts by central bankers to tighten financial conditions to tame price pressures.