Fed Speech, Tech Companies Push Market Higher

Like a happy hiker, all three major indexes on Friday marched higher on the way to recovering some of the earlier losses in the week.

Rising prices rekindled optimism in the stock market that started the new year with a rally before falling apart this week. Enthusiastic buying was fueled by positive earnings reports in the technology sector and a central bank official calling for dialing down the next benchmark interest rate hike in February.

The upside move in prices on Friday and a less hawkish speech from a central banker were welcomed by traders struggling to navigate a testy, uncertain stock market.

Big tech stocks lead Friday rally higher

Gains and cuts were the hot topics in the technology sector which fueled the spike in the Nasdaq on Friday. That spike was strong enough to pull the Dow and S&P 500 higher in turn.

In the market today, the Nasdaq spiked to 11,140.43 points for a 2.66% gain, ahead of other indexes. The S&P 500 joined the hike higher with a 1.89% increase to close at 3,972.61. The Dow was not to be left out in the upswing, closing at 33,375.49 points for a 1% increase (adding 330.93 points on the day).

Earnings reports and job cuts from mega cap technology stocks launched the Nasdaq higher to close the week.

Netflix closed 8.46% higher on Friday after a fourth quarter earnings report showing the video streaming company missed earnings estimates, but added more subscribers than expected.

Alphabet, parent company to Google, announced it will lay off as many as 12,000 employees and the stock rose 5.34% on the day.

Gains in technology sector stocks are welcomed by traders who saw an early 2023 rally fade away earlier this week. Rising stocks across the three major indexes pushed the Nasdaq to close with its third straight winning week while the Dow and S&P 500 climbed enough to stay in a positive range for the young year.

A strong performance across the broader market was not the only news that fueled higher prices. Another Federal Open Market Committee (FOMC), or central bank, official let loose more insight that motivated stock market participants.

Fed official calls for easing next interest rate hike

Central bank officials regularly give speeches that offer insight to stock market participants about upcoming actions regarding monetary policy.

Federal Reserve Governor Christopher Waller on Friday opened the door to speculation of an easing of FOMC actions that have been raising the federal funds rate.

Federal Reserve (Fed) governors are part of the FOMC which sets national monetary policy as part of the overall Federal Reserve System. 

Since last year the Fed has maintained a determined level of commitment to lowering inflation that hit a 40-year high last June. The Fed’s key action has been to raise the federal funds interest rates. TheFOMC hiked benchmark interest rates another 50 basis points, or .50%, in December.

This pushed the federal funds rate to a range of 4.25% to 4.5%. This is the highest funds rate in 15 years (the rate was just above zero in March, 2022). The central bank authorized seven interest rate hikes last year, including four .75% rate hikes in a row.

“The FOMC’s goal in raising interest rates is to dampen demand and economic activity to support further reductions in inflation,” Waller said on Friday. “And there is ample evidence that this is exactly what is going on in the business sector.”

“This slowing in business activity is consistent with the FOMC’s goal of damping demand and reducing production so that it is in better alignment with the productive capacity of the economy,” Waller stated. “The goal is not, I would emphasize, to halt economic activity, and so we will be watching these sectors closely to see how this moderation continues.”

Part of the FOMC efforts includes tamping down consumer spending which increased in the fourth quarter of last year, but has since tapered somewhat.

“Growth in consumer spending has also begun to slow,” Waller said. “Job one is maintaining the progress we are making in lowering inflation, and moderation in consumer spending will support that progress.”

Inflation still top priority for central bank

Waller believes that FOMC policies and actions have made an impact on inflation.

“We have made progress,” Waller said. “Six months ago, when inflation was escalating and economic output had flattened, I argued that a soft landing was still possible—that it was quite plausible to make progress on inflation without seriously damaging the labor market. So far, we have managed to do so, and I remain optimistic that this progress can continue.”

Waller commented on the tough decisions central bank officials had to make last year.

“When the FOMC began raising the federal funds rate last spring from near zero, it made sense to move quickly,” Waller said. “But after front-loading monetary policy tightening, with many unprecedented 75 basis point hikes in the federal funds rate target, by early December I believed the policy stance was slightly restrictive, and I supported a decision by the Committee to hike by a still considerable 50 basis points.”

Waller explained that “after climbing steeply and using monetary policy to significantly raise interest rates throughout the economy, it was apparent to me that it was time to slow, but not halt, the rate of ascent.”

FOMC officials plan to keep moving forward with actions to fight inflation.

“And in keeping with this logic and based on the data in hand at this moment, there appears to be little turbulence ahead, so I currently favor a 25 basis point increase at the FOMC’s next meeting,” Waller said. “Beyond that, we still have a considerable way to go toward our 2 percent inflation goal, and I expect to support continued tightening of monetary policy.”

The next FOMC meeting is scheduled for Jan. 31-Feb. 1.