Wall Street closes out a chilling February with another dip

• Published date: 01 March 2023
• Publication title: The Korea Times

A frigid February for Wall Street closed out with more losses on Tuesday.

The SP 500 fell 0.3 percent to lock in a loss of 2.6 percent for the month. The Dow Jones Industrial Average fell 232 points, or 0.7 percent, while the Nasdaq composite slipped 0.1 percent. 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 percent 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 SP 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 percent, 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 percent to 4.75 percent after starting last year at virtually zero.

The heightened expectations for rates sent yields jumping in the bond market. The yield on the...