Stock rise ahead of report on inflation
Wall Street active as investors hoping latest hike to interest rates is modest
Stocks closed higher Monday as Wall Street kicked off a busy week.
The S&P 500 rallied 1.4 percent, trimming its loss for the year to 16.3 percent. The Dow Jones Industrial Average rose 1.6 percent and the Nasdaq composite gained
1.3 percent. Small company stocks also rose, pushing the Russell 2000 index 1.2 percent higher. The indexes are coming off their first weekly loss in three weeks.
The main reasons for Wall Street’s struggles much of this year have been high inflation and the higher interest rates engineered to combat it.
“Tomorrow, the inflation data is pretty important because we’ve been getting some decent reads,” said Tom Martin, senior portfolio manager at Globalt Investments. “Not to say that inflation has been coming down by leaps and bounds, but sort of at the margin it looks as though prices are getting a little bit weaker.”
Higher rates slow the economy by design and risk causing a recession if they go too high, all while dragging down prices of investments. One upside for investors is that the Fed has hinted it will dial down the size of its rate hikes, leading to expectations for a more modest increase of 0.50 percentage points Wednesday.
That would follow four straight mega-hikes of 0.75 percentage points. Each was triple the Fed’s usual move, and they lifted the central bank’s key overnight rate to a range of 3.75 percent to 4 percent after starting the year at virtually zero.
Other central banks around the world are also likely to raise their own rates by half a percentage point this week, including the European Central Bank.
Any dial down in the size of rate hikes would mean less added pain for markets and the economy. Such hopes have helped stocks and bonds rally since mid-october, as investors have taken data reports to mean the worst of inflation has finally passed and would allow the Fed to ease up.
But expectations for a slowdown in rate hikes may also be setting some investors up for disappointment, if central banks signal this week they’ll ultimately take rates higher than markets expect.
Some investors also continue to make moves in anticipation of the Fed cutting interest rates during the second half of 2023.
The main reasons for Wall Street’s struggles much of this year have been high inflation and the higher interest rates engineered to combat it.