The major stock market averages finished with decent gains last week – the Dow Jones Industrial Average rose 1.1% to 35,090 – the NASDAQ Composite jumped 2.4% to 14,098 – and the Standard & Poor’s 500 Index added 1.6% (in its best week of the year) to 4,501. Gains in the NASDAQ and S&P 500 were led by Amazon, which surged over 13% Friday after posting strong quarterly earnings, a beat on cloud revenues, and a price increase for Prime.
The key piece of economic data out last week was the January Jobs Report. The U.S. Department of Labor reported the economy added 467,000 jobs last month, a blowout report in comparison to the 150,000 number expected by the markets (with some economists even predicting a decrease). This better-than-expected jobs report put even more focus on monetary policy going forward.
A stronger employment picture gives the Fed more room to raise interest rates and to fight inflation (which is at its highest level in decades). The strong January jobs number reinforced market expectations the Fed will act aggressively in pulling back monetary stimulus and raising rates. Currently, markets expect the Fed to raise rates a ¼ point in March, and then four more times this year. Further, the chance for a ½ point raise by the Fed in March has now increased to 28.8% (up from 8.5% a week ago), according to the CME FedWatch Tool.
The yield on the 10-year Treasury jumped above 1.9% last week, its highest level in over two years. Higher interest rates can be a headwind to stocks, and especially tech shares with high valuations. Bottom line, expect heightened volatility to continue in the markets until investors settle around and become comfortable with a new interest rate environment and Fed Policy.
For the week ahead, we’ll be getting a fresh batch of earnings reports to digest. Companies scheduled to report this week include Amgen, Chipotle Mexican Grill, CVS Health, Harley-Davidson, Kellogg, Pfizer, Walt Disney, Uber Technologies, Duke Energy, PepsiCo, Twitter, and the Coca-Cola Company. As always, don’t hesitate to reach out to us with any questions you may have or to set up a meeting.