Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
The markets closed Friday on a strong note after a volatile week filled with crucial Federal Reserve data, earnings reports and closely watched economic releases. Investors weighed better-than-expected GDP results against the Fed’s hawkish tone surrounding asset-purchasing and imminent rate hikes. The market is now pricing in five quarter-point rate hikes in 2022, up from three in December.
The major U.S. benchmarks all rose despite concerns earlier in the week. The Dow Jones Industrial Average led, gaining 1.34 percent, while the NASDAQ lagged as investors contemplated higher interest rates. The yield on the U.S. 10-year Treasury climbed to 1.78 percent for the week, while the U.S. dollar continued to surge versus major peers, and oil rose.
On Wednesday, the Federal Open Market Committee (FOMC) voted unanimously to hold rates steady but signaled that rate hikes will begin soon. Fed Chair Jerome Powell expects to raise rates in March but noted that policy will need to be nimble based on the environment.
The U.S. economy grew at a 6.9 percent annualized rate in the fourth quarter of 2021, even as the Omicron variant began to spread in the last three months of the year. Economic reports also showed that prices continued rise in the fourth quarter. The core Personal Consumption Expenditures Index (PCE), the Fed’s preferred measure of inflation, accelerated to a 4.9 percent annualized rate.
In geopolitical news, the Biden administration put 8,500 troops on heightened alert for possible NATO deployment. Russia has massed some 120,000 troops near the Ukraine border and demanded that the western defense alliance pull back troops and weapons from Eastern Europe and bar Ukraine, a former Soviet state, from ever joining NATO.
Looking towards this week’s economic calendar, we head into February with a good amount of economic data releases. On Tuesday, we get Manufacturing PMI and the JOLTS Job Openings Report. Economists forecast a moderate decline in job openings for the month of December but expect the figure to remain above ten million. On Thursday, we get both the Services and Composite PMIs, along with Factory Orders and Durables Goods Orders. Then we finish out the week with the biggest report of them all, the January Jobs report. Economists expect to see a modest decline in hiring for the month, though the unemployment rate and Labor Force Participation rate are both expected to remain steady at 3.9 percent and 62 percent respectively.
As always, we will be watching and reporting back to you next week. Thank you.