S&P 500 in rally mode as economic data eases fears of hawkish Fed

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By Yasin Ebrahim                                                                                                

AiVIF.com -- The S&P 500 jumped Friday, as the December jobs report showing cooling wage growth and data pointing to a slight contraction in services activity eased fears about a more hawkish Federal Reserve.

The S&P 500 rose 2.3%, the Dow Jones Industrial Average gained 2.1%%, or 702 points, the Nasdaq Composite was up 2.5%.

The economy created 223,000 jobs last month, well above economists’ estimates of 200,000, but the unemployment rate fell to 3.5%. Average hourly earnings fell more than expected to 4.6%, easing worries about a wage growth spiral that would force the Fed to lean more hawkish on rate hikes.

Treasury yields fell sharply as investors continued to price in the step down in the pace of rate hikes at the Fed’s meeting next month.

Sentiment on a less hawkish fed was also supported by data pointing to weakness in the economy following an unexpected contraction in services activity.

ISM non-manufacturing data for December fell to 40.6, missing expectations of 55. A reading below 50 indicates contraction.

But not everyone on Wall Street is convinced that the latest economic data will meaningfully shift the Fed's thinking on the pace of monetary policy tightening.

“The market seems to be thinking that, given this trend of data, perhaps the Fed won't have to raise 50 basis points again in February, maybe it'll be less, or maybe they'll choose to pause…we don't necessarily agree with that line of thinking,” Brian Mulberry, client portfolio manager at Zacks Investment Management told AiVIF.com's Yasin Ebrahim in an interview on Friday.

“In the minutes from the Fed's  December meeting [released] this week, it was unanimous among members of the FOMC group…They are going to keep interest rates high all year long,” Mulberry added.

Materials and industrials led the broader market higher, while big tech also played a role buoyed by falling Treasury yields.

Apple (NASDAQ:AAPL) rose more than 3% to lead the move higher in big tech, followed up by Meta (NASDAQ:META), Alphabet (NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT).

Tesla Inc (NASDAQ:TSLA), meanwhile, rebounded after hitting $101.82, a fresh 52-week low, as dip buyers emerged even as demand worries intensified after the electric vehicle market cut prices on its EVs for the second time in three months.

“The price cuts that we're seeing in China is a demand story, but I do believe that at $100 a  share, we're getting to a point that [Tesla] is starting to get to a massive risk reward level to own, despite going into Q4, where clearly they're going to lower guidance,” Wedbush Analyst Dan Ives said in a Bloomberg interview. “I think that's really the fear.”

In other news, Costco Wholesale Corp (NASDAQ:COST) reported that sales increased to $23.8 billion in December 2022, up 7% year-on-year, despite a weaker economic backdrop weighing on consumers.

McDonald’s Corporation (NYSE:MCD), meanwhile, is reportedly eyeing job cuts as part of a reorganization plan to boost restaurant expansion, CNBC reported Friday.