One month into 2023, and it looks like Wall Street is keeping that new year optimism alive and humming.
After an abysmal 2022, January has been a pleasant change of pace, my colleague Paul R. La Monica writes. The Nasdaq is up 11% for the month — its best month since July — while the S&P 500 is up 6% and the Dow is 3% higher.
Stocks moved higher again Tuesday, aka All Powell's Eve.
Yes, it's already time for another Federal Reserve policy meeting, and investors are counting on chairman Jay Powell announcing a quarter-point interest rate hike — a significant pullback from the aggressive monetary tightening that the central bank began last spring.
Wall Street is also eagerly awaiting earnings from four key Nasdaq-listed giants later this week: Facebook owner Meta Platforms, Apple, Amazon and Google parent Alphabet. And if that weren't enough suspense for one week, the jobs report for January comes out Friday morning.
So, for those keeping track at home, we've got good news brewing in the economy.
✅ Inflation has likely peaked and is steadily cooling.
✅ Interest rate hikes are getting smaller and could even pause entirely later this year.
✅ Corporate America is so far showing decent earnings.
✅ The labor market remains resilient.
With all of that, why are people still freaking out about a recession?
Look, no one knows with any certainty, but there are mixed opinions about whether the US economy will contract later this year. There are skeptics who doubt that corporate earnings will grow sharply enough this year to justify the January stock rally and keep its momentum going, Paul notes. The market could be poised for a fall if earnings or economic data disappoint.
"The market is partying but many management teams are saying that there are clouds on the horizon," said Austin Graff, chief investment officer with Opal Capital. "The reality is that this is a choppy environment. You have to focus on what's coming."
On the global front, at least, the outlook is far less gloomy than it was even a few months ago.
On Monday, the International Monetary Fund said it now expects global growth to slow to 2.9% this year (from 3.4% in 2022). That's up from a forecast of 2.7% in October.
While that's still historically weak, "the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining," wrote Pierre-Olivier Gourinchas, the IMF's director of research.
Why the optimistic shift?
- China's "sudden reopening," the IMF said, "paves the way for a rapid rebound in activity."
- Europe economy also managed to eke out growth in the fourth quarter of 2022, easing fears of a recession.
My colleague Julia Horowitz has more.
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