American flags fly outside the New York Stock Exchange, Friday, Sept. 23, 2022, in New York. (AP Photo/Mary Altaffer, File)
By Stan Choe
A frigid February for Wall Street closed out with more losses on Tuesday.
The S&P 500 fell 0.3% to lock in a loss of 2.6% for the month. The Dow Jones Industrial Average fell 232 points, or 0.7%, while the Nasdaq composite slipped 0.1%. Both also sank over the month.
After a strong start to the year bolstered by hopes that inflation was on the way down, Wall Street shifted into reverse in February. A stream of data showed inflation and the overall economy are remaining more resilient than expected. That’s forced investors to raise their forecasts for how high the Federal Reserve will take interest rates and how long it will keep them there.
High rates can drive down inflation, but they also raise the risk of a recession down the line because they hurt the economy. They also drag on prices for stocks and other investments.
After earlier this year hoping that the Fed could soon pause its aggressive hikes to interest rates, and maybe even begin cutting them late this year, traders have come around to believe the Fed’s long insistence that it plans to take rates higher for longer to ensure the job is done on inflation.
The Fed has said it wants rates to climb to a “sufficiently restrictive” level where the economy slows enough to get inflation down to its 2% goal.
“Everything is sort of churning,” said Thomas Martin, senior portfolio manager at Globalt Investments. “Right now, the economy is doing fairly well, but earnings estimates for 2023 for the S&P 500 are continuing to drift lower. So you’re still moving in a softening direction. It’s just: How close do you get to the ground?”
He has raised his forecast for how high the Fed will ultimately raise rates, but he also said it’s difficult to feel a great amount of certainty given all the push and pull.
“What everyone’s hoping for is that they are restrictive but not destructive,” Martin said of the Fed and rate hikes. “Where we end up, there’s just a wide range of outcomes.”
Many investors now see the Fed hiking its key overnight interest rate up to at least 5.25%, if not higher, and keeping it there through the end of the year. The Fed’s rate is currently set in a range of 4.50% to 4.75% after starting last year at virtually zero.
The heightened expectations for rates sent yields jumping in the bond market. The yield on the 10-year Treasury held steady at 3.92% Tuesday. It helps set rates for mortgages and other loans that shape the economy’s health, and still near its highest level since November.
The two-year yield, which moves more on expectations for Fed action, ticked up to 4.81% from 4.78%. It’s near its highest level since 2007.
Worries about rates have caused the S&P 500’s gain for the year to more than halve. It was up as much as 8.9% in early February, the day before a report showed U.S. employers hired nearly a third of a million more people in January than expected.
Such strength is good news for the economy and calms fears about a recession hitting imminently. But the Fed worries it could also feed into upward pressure on inflation. Not only are jobs still plentiful, U.S. households also increased their spending at stores and elsewhere in January.
Now the S&P 500 is hanging onto a gain of 3.4% for the year.
Reports on the economy released Tuesday showed some slight cracks. One said that confidence among U.S. consumers unexpectedly fell in February. Another said that manufacturing in the Chicago region weakened by more than expected.
All the worries have come across a backdrop of falling earnings for big corporations. S&P 500 companies are in the midst of reporting their first decline in profits from year-earlier levels since 2020, when the pandemic was choking the economy, according to FactSet.
Most companies have already reported their results for the last three months of 2022, but several big-name retailers are still on the schedule for this week.
Among them was Target, which on Tuesday reported better profit and revenue than expected for the latest quarter. But it also echoed some other retailers in giving a cautious forecast for upcoming results as U.S. households contend with still-high inflation. Its stock rose 1%.
On the losing end was Norwegian Cruise Line. It tumbled 10.2% after reporting a bigger loss for the latest quarter than expected. It also gave profit forecasts for the upcoming quarter and year that fell short of Wall Street's.
All told, the S&P 500 fell 12.09 points to 3,970.15. The Dow fell 232.39 to 32,656.70, and the Nasdaq dropped 11.44 to 11,455.54.
——
AP Business Writers Elaine Kurtenbach and Matt Ott contributed.
Decentralized talent network Braintrust recently closed an atypical equity deal that involved investors buying $100 million in Braintrust tokens, the company's cryptocurrency. Braintrust's talent network is built on blockchain technology, which the company says allows it to be owned and built by users, instead of a centrally-controlled corporation. Braintrust users can also earn tokens for their contributions to the network and its growth. Braintrust co-founder Adam Jackson joins Cheddar News' Closing Bell to discuss.
Blue Origin launched its third manned mission over the weekend with 'Good Morning America' host Michael Strahan and Laura Shepard Churchley, daughter of astronaut Alan Shepard on board, alongside several Blue Origin investors.
This comes after the spaceflight firm launched two successful missions to the edge of space earlier this year. How will these missions set up Blue Origin for success as it competes with SpaceX and other companies for space tourism domination and more? Joey Roulette, space reporter at The New York Times, joins Cheddar News' Closing Bell to discuss.
If there's any question about whether inflation is here to stay, today's November consumer price index data gives us an answer. This is the second month in a row we've seen a hot inflation reading — CPI last month rose to 6.8%, after jumping to 6.2% in October. Amid the holiday shopping season, what does this mean for consumers? And how will the Federal Reserve move forward after previously announcing it would speed up its asset taper timeline? Art Hogan, Chief Market Strategist at National Securities, joins Cheddar News' Closing Bell to discuss November's CPI jump, where consumers are hurting the most, what the Fed could do to help ease inflation, and more.
Editorial and stock photo provider Getty Images is gearing up to make its public debut via a SPAC merger with CC Neuberger Principal Holdings II bringing it to a $4.8 billion valuation. CEO Craig Peters joined Cheddar to break down the decision to go public and noted that the merger will help to pay down debt. "That's going to really enable a lot of additional free cash flow and financial flexibility into the business," he noted. "That's just going to allow us to just invest more aggressively into the business to accelerate what is already accelerating growth." Peters also discussed the legacy image platform's place going forward in the expanding world of digital assets like NFTs and the metaverse.
Ben Schiller, the managing editor for features and opinion at CoinDesk, breaks down how the year's top 10 crypto influencers were selected and what to expect from the blockchain ecosystem, especially the growth of NFTs, in 2022. "This whole crypto story has become not just a story about money or the future of money," he said. "It's also become a cultural story where it's getting into gaming, it's getting into artwork, into collectibles, and all kinds of cultural categories it wasn't in before." Schiller noted that he expects the U.S. and other world governments to establish crypto regulations in the coming year.
Ford said it will ramp up production for its Mustang Mach-E as demand for the electric vehicle surges. The automaker expects to sell upwards of 200,000 annually by 2023.
Mina Makar, senior vice president of respiratory and immunology, Astrazeneca, joined Cheddar to discuss the FDA's decision to give emergency use authorization to the pharma giant's COVID-19 antibody treatment called Evusheld for immunocompromised patients For about 2 percent of the U.S. Makar noted that the injection is supposed to provide antibody protection for those who can't generate their own adequate immune response via the vaccines for a minimum of six months, though long-term trials are underway.
The pandemic has forced corporate America to reshape itself to adapt, including onboarding doctors as chief medical officers to help maintain the health and safety of staff. Dr. Geeta Nayyar, chief medical officer at Salesforce, joined Cheddar to break down her role and how it has become relevant and necessary in the evolving workplace. "Every business today is now in the business of healthcare," she said. "It is a priority to empower employees to then serve your customers."
Sustainable consumer products maker Grove Collaborative is gearing up to launch an IPO via a SPAC merger with Richard Branson's Virgin Group Acquisition Corp II. Stuart Landesberg, CEO and co-founder of Grove Collaborative, talked to Cheddar's Kristen Scholer about going public through the merger and aligning with a partner he felt also prioritizes climate. "What this partnership will mean is that we're able to expand the assortment and innovations that we bring to market in products that work just as well as the conventionals and market leaders but have a significantly different environmental profile," Landesberg said.
