Interest Rates Remain Steady, Offering Relief to Nervous Stock Market

March 08, 2023 at 13:47 PM EST

Considerations for higher interest rates have pushed the market into panic mode, which had greater expectations of ease going into the second quarter of 2023. The Fed has suggested a 50 basis point increase, throwing some stocks of their growth marks to lower figures. The indication of higher rates came Thursday 16th—a move supposed to deal with inflation that has slowed but is still historically high.

Higher rates are not good news for stock investors, and any suggestion of an increase has previously pushed the stock market to the brink. The Fed is currently mulling two options, a half percent increase or a quarter-percent increase to lower inflation further to scuttle the interest rates vs stock market debates that have dominated the media in the past year.

Warning Comes After a Rebound

Steadiness in the markets, occasioned by lower interest rises to start in December, has pushed a rebound in the overall economy of the USA and most parts of the world. The housing industry has enjoyed higher demand since late December and early 2022 with prices also keeping up with the demand so far—signs of better things to come in a steady environment.

The labor market has also recovered, as job claims lowered to about 194000 a week from a solid 200000 previously. However, more than the figures are needed to convince policymakers to stop raising interest rates completely, as the target is a lower than 2 percent inflation rate come late 2022.

Impact of a Steady Market

In a late 2022 meeting, the Fed mulled lower rates of about half percent going forward. The Fed has kept the promise in January as it is now mulling rate increases of less than half a percent in 2023. The suggestions have helped rally the market in recent weeks. While the steadiness of interest rates has played a role in the rebound, other technical factors have also played a critical role.

Businesses, for example, have rejected the idea of cutting their workforce, keeping the labor market steady in early January. However, the businesses will hope for a steady market to continue sustaining a larger labor force.

In addition, the Christmas period also pushed people off their marks and into a spending frenzy that continued into January. Overall, the retail market in January performed better than expected.

What Way Forward

Projections are rife that the Fed will continue pushing up rates till July, which will stand at about 5.2 percent. Currently, the average rate at about 4.5 percent, and a record high of about 4.9 percent has already hit the markets in the US.

Top indices have had an up-and-down movement also, suggesting a net gain this year when 2023 will approach a close. Dow Jones has shed about 1.3 percent in the year, while the S&P has seen a 7 percent gain over the same period. While the two indices have seen reverse fortunes with an average of a 7 percent gap, steadiness in the market will push both in the positive dimension as the year spans out.

Optimism in the Crypto Market

Crypto had a poor run in 2022—some coins shed over 50 percent of their September 2021 highs. This year so far, Bitcoin has topped a higher value of about $25000, which is impressive following weeks of a slump and a strong resistance below $20000. Breaking the $20000 mark and a steady market will push the crypto market higher in the year.

The rise in crypto comes after the easing of super-high interest rates advanced by the Fed last year, and the falling fears of a massive crackdown by the feds.

Gold has steadied, while crude futures fell because of the large stockpiles by large economies around the world.

Bottom Line

The markets witnessed a poor run because of the higher interest rates imposed by the Fed and Central banks to deal with the higher cost of living that plagued the markets in the better part of 2022. So far, the imposed rates have worked to lower inflation rates, meaning lower and steady rate rises in 2023. Data so far points to a rebound in the investment environment, which might keep up if the Central Banks maintain a lower rate raise policy.

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