Friday’s significant stock market rally, which saw the S&P 500 reaching a new record high, was mainly driven by Meta Platforms (META) and Amazon.com (AMZN), but a considerable amount of credit should also be given to Fed chief Jerome Powell.
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While the Federal Reserve chairman dismissed the possibility of a Fed rate cut in March, his overall comments were more optimistic. Powell expressed that the Fed does not view strong growth as a problem and emphasized that the institution is not seeking a weaker labor market, despite the seemingly slower private payroll growth reported earlier in the week. However, the jobs report released on Friday told a different story, revealing that the U.S. added 353,000 jobs last month, exceeding expectations. Average hourly earnings also exceeded forecasts, increasing by 0.6% compared to December.
Although there are reasons to question the accuracy of the job and wage gains, the report indicated a significant economic and labor strength. Despite this, Wall Street reacted positively to the jobs report, with major indexes reaching record highs and big tech companies like Meta Platforms and Amazon leading the charge.
The Nasdaq surged by 1.7%, while the Russell 2000 fell by 0.5%. The Invesco S&P 500 Equal Weight ETF (RSP) also experienced a slight decrease of 0.1%, despite climbing 0.4% for the week. Fed chief Powell’s comments played a crucial role in Wall Street’s response to the January jobs report. The report further reduced market expectations of a March rate cut to around 20% and, despite the reduced odds, the chances of a Fed rate cut by May 1 remain high at 73%. However, Wall Street is still betting on six quarter-point rate cuts for the year.
Considering the possibility of substantial interest rate cuts in 2024 despite robust economic growth, it could significantly benefit the stock market. For updates, follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson.
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