Markets Rally as Fed Rate Move Approaches

Stocks closed higher on Wall Street as investors grew more convinced the Federal Reserve will keep downshifting the size of its rate hikes and as several major companies prepared to report their latest results. Tech companies led the way in a broad rally, pushing the Nasdaq composite up 223.98 points, or 2%, to 11,364.41, the AP reports. The S&P 500 rose 47.20 points, or 1.2%, to 4,019.81. The Dow Jones Industrial Average rose 254.07 points, or 0.8%, to 33,629.56. This week Microsoft, Tesla and Boeing are among the dozens of companies that will deliver their results for the last three months of 2022.

Monday's gains follow a strong Friday, when stocks rallied on comments from a Fed official seen as a signal that the central bank may raise rates by just 0.25 percentage points next week. That would be a downshift from last month's 0.50 point increase and from four straight earlier hikes of 0.75 points. Higher rates intentionally slow the economy by making it more expensive for businesses and households to borrow, so a step down would mean less added pressure. The Fed has already pulled its key overnight rate up to a range of 4.25% to 4.5% from virtually zero early last year, and traders are now betting on a nearly 99% probability that the Fed will raise rates by just a quarter point on Feb. 1, according to CME Group.

The bigger question is how much further the Fed goes from there, and how long it will wait before it cuts interest rates. Such cuts can act like steroids for markets, and Wall Street is hoping they could arrive in the back half of this year. The Fed, meanwhile, has been adamant that it plans on holding rates high at least until 2024. This year’s rally so far, with the S&P 500 up more than 4% in January already, is largely a result of how deeply pessimistic Wall Street become late last year, says Ryan Detrick, chief market strategist at Carson Group. With so many investors expecting further losses in 2023, "it was extremely lopsided," he says, "and if you get any good news, you can get a bounce." "Have we had great news? No," Detrick says. "But most of the inflation data is improving more than most people expected, which is opening the door for the Fed to take its foot off the pedal." (More stock market stories.)