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Stocks Turn Positive in Choppy Week; Fed to Raise Interest Rates Thumbnail

Stocks Turn Positive in Choppy Week; Fed to Raise Interest Rates

In a very choppy week, the Dow (+1.3%), NASDAQ (+0.0%), and S&P 500 (+0.8%) reversed course on Friday to close the week in positive territory.  Meanwhile, bonds continued their recent slide, with taxable bonds losing about 0.5% and tax free municipal bonds being slashed by about 1.5%.


The continued news driving the markets is the Fed’s response to inflation and its expectation to raise interest rates.  At the conclusion of it’s meeting last Wednesday, the Fed announced that it will likely be raising interest rates as soon as their next meeting in March, which will also coincide with the timing of their conclusion of the bond buyback program.  In short, the Fed’s accommodative policy since the pandemic is ending, and this is impacting both the stock and bond markets.  With that, the higher growth stocks are the most impacted by rising interest rates.  This is evidenced by only one of the 11 sectors of the S&P 500 being positive so far in 2022 (Energy +18%), while the worst performing sector has been technology, down 13%.


The news surrounding the Fed’s interest rate policy has been drowning out the fact that we are in the midst of corporate earnings season.  Nearly one third of companies have reported their 2021 Q4 earnings, and they have not disappointed.  Thus far, they have grown an average of 24% over the prior year, and have exceeded expectations of 21%.  That’s where the rubber meets the road, but the stock markets are a leading indicator, and they may be eluding to the anticipated growth rate of single digits in the first half of 2022.  Lots of data ahead of us, and all eyes will be on the Fed for the next several weeks to months.

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