Market Extra: Why the stock market’s ‘FOMO’ rally paused and what will decide its fate

by | Feb 12, 2023 | Stock Market

A torrid, tech-led stock-market rally stalled out this past week as investors began to come around to what the Federal Reserve has been telling them. Bulls, however, see room for stocks to continue their rise as institutional investors and hedge funds play catch up after cutting or shorting stocks in last year’s tech wreck. Bears contend a still-hot labor market and other factors will force interest rates even higher than investors and the Fed expect, repeating the dynamic that dictated market action in 2022.

Financial market participants this past week moved closer to pricing in what the Federal Reserve has been telling them: the fed-funds rate will peak above 5% and won’t be cut in 2023. Fed-funds futures as of Friday were pricing in a peak rate of 5.17%, and a year-end rate of 4.89%, noted Scott Anderson, chief economist at Bank of the West, in a note. After Fed Chair Powell’s Feb. 1 news conference, the market still expected the fed-funds rate to peak just shy of 4.9% and end the year at 4.4%. A red-hot January jobs report released on Feb. 3 helped turn the tide, alongside a jump in the Instit …

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