Consumer Sentiment Rises to 13-Month High, Fed Pressured to Continue Raising Rates
By On Friday, the University of Michigan released its consumer sentiment survey, which showed that consumer sentiment rose to a 13-month high of 67 in February.[0] This was an increase from the preliminary reading of 66.4 and 64.9 in January. Additionally, the survey’s chief economist Joanne Hsu surmised that Main Street’s optimism is growing amid lingering negativity.[1]
Meanwhile, the Bureau of Economic Analysis released the personal consumption expenditure (PCE) price index for January which showed the cost of U.S. goods and services jumped 0.6% in January, its biggest rise since last summer.[1] This was further evidence that inflation is taking its time to return to prepandemic levels.[2]
The PCE price index rose 0.6% in January, or an annual rate of 5.4%.[3] Core Personal Consumption Expenditures (PCE), omitting volatile food and energy prices, was higher in January than in December.[4] This was higher than expected and resulted in the 10-year Treasury yield climbing to 3.94%.[5]
To combat inflation, the Federal Open Markets Committee (FOMC) increased interest rates by 25 basis points at its last meeting, marking the eighth consecutive rate hike.[6] The minutes from the last meeting of the FOMC revealed that while there were signs of inflation easing, central bank officials were still concerned about rising prices and noted that further interest rate hikes were likely.[6] Markets are now pricing in a 27% chance that the central bank will raise its key rate by 50 basis points at its next meeting.
Sales of new single-family houses in the U.S. surged 7.2% in January to a seasonally adjusted annual rate of 670,000, hitting its highest level in 10 months, according to the Commerce Department.[7]
In single-stock news, Carvana (CVNA) plummeted 20.5% after the online auto dealer reported a sharp year-over-year decline in units sold (-23%) and revenue (-24%) in Q4.[4] Booking Holdings (BKNG) reported quarterly earnings that soared 56% a share, beating expectations and sending shares up 1%.[7]
Overall, the market is pricing in roughly one-third odds that the Fed will hike its key rate by a half-point on March 22. The recent batch of data is keeping the pressure on the central bank to continue to raise its key rate as it fights against inflation.
0. “Stocks Close Lower as a Resilient Economy Bolsters the Case for More Rate Hikes” Barchart, 24 Feb. 2023, https://www.barchart.com/story/news/14534753/stocks-close-lower-as-a-resilient-economy-bolsters-the-case-for-more-rate-hikes
1. “Markets suffer worst week of 2023 on consumer and producer price reports” Courthouse News Service, 24 Feb. 2023, https://www.courthousenews.com/markets-suffer-worst-week-of-2023-on-consumer-and-producer-price-reports/
2. “Stock Futures Rise on Wednesday Evening: Live Updates” NBC Connecticut, 22 Feb. 2023, https://www.nbcconnecticut.com/news/business/money-report/stock-futures-rise-on-wednesday-evening-live-updates/2981537/
3. “Dow Jones Dives 500 Points On Hot Inflation Report; Tesla Stock Skids Below $200” Investor's Business Daily, 24 Feb. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-fall-200-points-ahead-of-key-inflation-report/
4. “Stock Market Today: Hot Inflation Data Sinks Stocks” Kiplinger's Personal Finance, 24 Feb. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-022423-hot-inflation-data-sinks-stocks
5. “Another hot inflation report sends Nasdaq, S&P 500, Dow lower (SP500)” Seeking Alpha, 24 Feb. 2023, https://seekingalpha.com/news/3940862-another-hot-inflation-report-sends-nasdaq-sp-500-dow-lower
6. “Treasury yields dip as investors assess Fed policy outlook” CNBC, 23 Feb. 2023, https://www.cnbc.com/2023/02/23/us-treasury-yields-investors-assess-fed-policy-outlook.html
7. “Stocks Tumble as Strong Economic Reports Bolster the Case for Tighter Fed Policy” Barchart, 24 Feb. 2023, https://www.barchart.com/story/news/14527214/stocks-tumble-as-strong-economic-reports-bolster-the-case-for-tighter-fed-policy
