Stocks Struggle to Advance With Higher Rates Ahead

Barry Adams
04 Jan, 2023
New York City

Benchmark indexes spent the session in the positive zone but lacked direction in volatile trading. 

Investors are struggling to determine the future direction of interest rates, inflation and corporate earnings amid mixed signals from the economy. 

The latest jobs survey showed the labor market remained strong and the December Fed's minutes of meeting failed to provide any additional insights in the inner workings of the economy. 

Fed policy committee members generally supported higher rates and raised their estimates of interest rates in 2023 but policymakers also reinforced the need to increase rates until they are restrictive for the economy. 

At the last meeting in December, the Federal Reserve raised its key lending rate range to between 4.25% and 4.50%, the highest level in 15 years. 

The economic projections provided along with the rate decision also suggested rates are likely to rise as high as 5.1% in 2023 from the previous estimate of 4.6%. 

"Participants generally observed that maintaining a restrictive policy stance for a sustained period until inflation is clearly on a path toward 2 percent is appropriate from a risk-management perspective," noted the December minutes of meeting. 

Overseas, inflation continued to drift lower in France, Germany, Spain and Switzerland but business and consumer spending continued to remain weak in China, fueling the prospect of slower or no economic growth worldwide. 

 

Indexes In Review 

Two popular benchmark indexes struggled to get traction after latest job data indicated strong labor market conditions but mortgage applications dropped to the lowest level since 1996. 

The S&P 500 index rose 0.75% to  3,852.97 and the Nasdaq Composite index increased 0.7% to 10,458.76. 

 

Crude Oil and Natural Gas Fall 

Crude oil prices fell for the second week in a row amid the rising supply and falling demand growth. 

Brent crude dropped near the one-year of $75.60 a barrel low last seen on December 9th on warmer than expected weather in Europe. 

WTI crude future for the immediate month delivery also fell near the one-year low $70.30 a barrel reached on December 9. 

WTI crude oil declined 5% or $3.78 to $73.11 a barrel and natural gas rose 4.2% or 16 cents to $4.15 a thermal unit. 

 

Treasury Yields Eased Again  

The yields on U.S. treasury bonds continued to drift lower as investors piled into government securities on the expectations that the Federal Reserve Bank will gradually slow its future rate hikes. 

The yield on 2-year Treasury notes decreased to 4.36% and 10-year Treasury notes fell to 3.68% and 30-year Treasury bonds dropped to 3.80%. 

 

U.S. Stock Movers 

China-linked stocks were in focus again today on the ongoing speculation on the rebound in business and travel activities after the abrupt ending of zero-covid restrictions. 

Tesla rose 3.3% to $111.49 on the hopes that China sales will revive soon. The company also extended 10,000 yuan ($1,388) offered in the last two weeks for vehicles made in Shanghai till the end of January. 

China's economic growth has dropped to its lowest pace in decades after the flare-up of Covid-infections and steep job losses in the tech sector. 

Rivian Automotive fell 0.2% to $17.37 after the electric vehicle maker missed its production target. 

 

Job Opening Eased In November 

Job openings in the U.S. fell slightly in November, indicating the job market strength, according to the latest data released by the Bureau of Labor Statistics. 

Job openings in November declined 54,000 to 10.5 million and have slowly eased after hitting 11.9million peak in March. 

 Over the month, the number of hires and total separations changed little at 6.1 million and 5.9 million, respectively. 

 

Mortgage Applications Down to 26-year Low

Mortgage applications dropped 13.2% from two weeks earlier in the week ending in December according to the latest survey released by the Mortgage Bankers Association. 

The Market Composite Index, a measure of mortgage loan application volume, decreased 13.2% on a seasonally adjusted basis from two weeks earlier.  

On an unadjusted basis, the Index decreased 39.4 percent compared with the two weeks ago