(FiveNation.com)- Investors continued to evaluate whether interest rates would stay high for a lengthy period, leading U.S. equities to conclude February sluggishly, with all three major indexes closing with monthly losses.
January was a good month for stocks, but February was a different story as investors reassessed the likelihood that the Federal Reserve would increase rates to a higher level than predictions and keep them raised for longer than initially expected due to economic data and comments from U.S. Federal Reserve officials.
Johan Grahn of Minnesota’s Allianz Investment Management said the market, in many respects, anticipated things to go south more rapidly, prompting the Fed to pivot, halt, or drop rates sooner than the Fed was indicating.
Preliminary data shows that the S&P 500 dropped 12.96 points, or 0.33%, to finish at 3,969.28 points, while the Nasdaq Composite slumped 11.83 points to 11,455.15. At 32,642.33, the Dow Jones Industrial Average is down 246.76 points, or 0.75%.
Fed fund futures indicate rates will peak at 5.4% by September, up from 4.57% now, suggesting traders are pricing in the possibility of a larger 50 basis point rate rise in March, though the probabilities remain low at roughly 23%.
According to BofA Global Research’s worst-case scenario, interest rates might rise to over 6%.
Nevertheless, a consumer confidence rating unexpectedly dropped in February, and a barometer of house price appreciation slowed even more in December, according to economic statistics released on Tuesday.
As Goldman Sachs’s CEO David Solomon indicated, the firm is examining “strategic options” for its consumer division, the blue-chip Dow index fell.
When the Federal Reserve started raising interest rates last year, volatility was widespread. The first two months of this year have seen as many days with gains or losses of at least 1% on the S&P 500 as the whole year of 2022, which had 122 such trading days.
According to Chicago Fed President Austan Goolsbee, it is not enough for the Fed to depend on market responses. Instead, the Fed needs real-time, on-the-ground assessments of economic circumstances to complement conventional government statistics and readings from financial markets.