Fed's Path to Cooling Inflation Continues to Loom Large

Markets this month were unable to build upon January's momentum following speculation that the central bank will continue with interest rate hikes.

In other contexts, a string of positive economic data, including reports on jobs and retail sales, would provide a tailwind for equities. In these inflationary times, however, the specter of the Federal Reserve’s (the Fed) commitment to cooling the economy via higher interest rates has made any good news suspect.

The major stock market indices reflected this tension until a key measure of inflation provided the bad-enough news needed to seemingly convince the market that the Fed will continue toward a higher interest rate regimen. Thus February’s hopes of building on January’s gains ended, and the S&P 500 closed 2.61% down for the month.

“While the Fed probably still has some more work to do, we continue to believe that the end of the tightening cycle is near,” said Raymond James Chief Investment Officer Larry Adam. “We would also note that the continued and recent strength in the economic data mitigates the intensity of the expected recession.”

Let’s review our year-to-date numbers and get to the details.

 

12/31/22 Close

2/28/23 Close*

Change
Year to Date

Gain/Loss
Year to Date

DJIA

33,147.25

32,656.70

-490.55 -1.48%

NASDAQ

10,466.48

11,455.54

989.06 +9.45%

S&P 500

3,839.50

3,970.15

130.65 +3.40%

MSCI EAFE

1,943.93

2,056.90

112.97 +5.81%

Russell 2000

1,761.25

1,897.00

135.75 +7.71%

Bloomberg U.S.
Aggregate Bond Index

2,048.73

2,055.81

7.08 +0.35%

*Performance reflects index values as of market close on Feb. 28, 2023. MSCI EAFE and Bloomberg Aggregate Bond reflect Feb. 27 closing values.