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Stock Market News for Feb 3, 2023

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Wall Street closed mixed on Thursday after a choppy session. Market participants were busy assessing the Fed’s February FOMC outcome and the possibility of a near-term recession. Gradual reduction of the magnitude of interest rate hike boosted investors sentiment. The S&P 500 and the Nasdaq Composite ended sharply higher while the Dow finished in negative territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 0.1% to close at 34,053.93. Notably, 15 components of the 30-stock index ended in positive territory while 15 in negative zone. The major loser of the blue-chip index was UnitedHealth Group Inc. (UNH - Free Report) as its stock price tumbled 5.3%. UnitedHealth Group carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The tech-heavy Nasdaq Composite finished at 12,200.82, jumping 3.3% or 384.50 points due to strong performance of large-cap technology stocks. The tech-laden index recorder highest closing since Sep.12, 2022.

The S&P 500 surged 1.5% to end at 4,179.76. The broad-market index recorder highest closing since Aug 25, 2022. Seven out of 11 broad sectors of the benchmark index closed in positive territory while four in red.

The Consumer Discretionary Select Sector SPDR (XLY), the Technology Select Sector SPDR (XLY), the Communication Services Select Sector SPDR (XLC) and the real Estate Select Sector SPDR (XLRE) were up 3.1%, 2.7%, 6.6% and 2.3%, respectively. On the other hand, the Energy Select Sector SPDR (XLE) was down 2.3%.

The fear-gauge CBOE Volatility Index (VIX) was up 4.8% to 18.73. A total of 15 billion shares were traded on Thursday, higher than the last 20-session average of 11.70 billion. Advancers outnumbered decliners on the NYSE by a 2.29-to-1 ratio. On Nasdaq, a 2.55-to-1 ratio favored advancing issues.

Fed Reduces Magnitude of Interest Rate Hike

In its February FOMC meeting, the Fed hiked the benchmark interest rate by 25 basis points to the range of 4.50% to 4.75%, marking its highest rate since late 2007. Fed Chairman Jerome Powell said “We can now say I think for the first time that the disinflationary process has started. However, it would be very premature to declare victory or to think we really got this.”

Powell categorically denied any possibility of a rate cut in 2023. “Inflation data received over the past three months show a welcome reduction in the monthly pace of increases,” Powell said in post-FOMC news conference. “And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.”

However, the market applauded Powell’s recognition that the disinflationary process has started. A lower interest rate and a lighter monetary control will be good for growth sectors like technology, communication services and consumer discretionary.

Major Central Banks Hike Rate

On Feb 2, the European Central Bank (ECB) hiked the benchmark interest rate by 50 basis points and said that it would raise interest rate by another 0.5% in March. The central  bank will keep raising the benchmark rate until inflation rate come down to 2% target level.

The Bank of England also raised the benchmark interest rate by 50 basis points and indicated that it will continue monetary tightening in order to combat inflationary pressure.

Economic Data

The Department of Labor reported that unit cost in fourth-quarter 2022 came in at 1.1%, below the consensus estimate of 1.5%. Third-quarter’s data was revised downward to 2% from 2.4% reported earlier. Nonfarm productivity in fourth-quarter 2022 came in at 3%, beating the consensus estimate of 2.5%.  Third-quarter’s data was revised upward to 1.4% from 0.8% reported earlier.

The Department of Labor reported that weekly jobless claims dropped 3,000 to 183,000 for the week ended Jan 28, marking its lowest level in nine months. The consensus estimate was 197,000. Continuing claims (those who already received government grants and reported one week back) decreased 11,000 to 1.655 million for the week ended Jan 21.

Factory orders (both durable and non-durable goods) increased 1.8% in January compared with the consensus estimate of 2.4%. December’s data was revised downward to a decline of 1.9% from a decline of 1.8% reported earlier.

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