Stocks closed mixed after a second day of hawkish testimony before Congress by Federal Reserve Chair Jerome Powell and a series of rate hikes by global central banks. Economic data also pressured equities for much of the trading day.
Powell wrapped up his two-day semi-annual report to Congress by reiterating the Fed's view that interest rates will need to rise further in order to bring inflation under control.
In an appearance before the U.S. Senate Banking Committee, the Fed chief repeated that a "strong majority" of the central bank's rate-setting committee, the Federal Open Market Committee (FOMC), believe two more quarter-point rate hikes will be required before the end of the year.
The Fed kept the short-term federal funds rate unchanged at a target range of 5.0% to 5.25% when it last convened in June, but Powell has said the FOMC has "a long way to go" to get back to its 2% inflation target.
While Powell was talking about policy tightening, other nations' central banks had already gone through with such moves. The Bank of England, the Swiss National Bank and Norway's central bank all raised their benchmark interest rates Thursday.
Stocks have rallied in no small part this year in anticipation of looser monetary policy. However, those hopes may prove to be a bit premature, strategists note.
"The global growth outlook is deteriorating quickly as major central banks are delivering more rate hikes and signaling that more tightening is coming," said Edward Moya, senior market analyst with OANDA, in a note to clients on Thursday. "Aggressive tightening from here on out will torpedo the economy."
In other economic news, the number of Americans applying for first-time unemployment claims held steady week-to-week, but remained at a level not seen since late 2021. We also learned Thursday that although sales of existing homes in the U.S. rose slightly last month, the median price of an existing home fell 3.1% – the largest drop since late 2011.
In single-stock news, Boeing (BA, -3.0%), one of the 30 Dow stocks, paced the industrial average's decline after workers at a key supplier voted to go on strike.
However, continued strength in mega-cap technology and communications services stocks helped buoy the indexes towards the latter part of Thursday's session. The market's biggest stocks – Apple (AAPL), Microsoft (MSFT) and Amazon.com (AMZN), which is technically a consumer discretionary stock – all closed higher by 1.7% to 4.3%.
At the closing bell, the blue-chip Dow Jones Industrial Average was off by less than a tenth of a percent at 33,946. Happily, the other two market benchmarks snapped three-day losing streaks. The broader S&P 500 added 0.4% to 4,381, while the tech-heavy Nasdaq Composite rose almost 1% to end at 13,630.
How to invest for the second half of 2023
The market is off to a terrific first half of 2023, but the momentum that put it within striking distance of a new bull market might be starting to wane.
For one thing, it looks like investors will have to wait a little longer for the end of the most aggressive campaign of interest rate hikes in four decades. It's also unclear how much upside is left in the mega-cap tech rally. Although the promise of generative artificial intelligence (AI) has added hundreds of billions of dollars to the collective market values of the S&P 500's biggest stocks, we're still waiting for much of the rest of the market to catch up.
Put it all together, and the second-half outlook for stocks has grown increasingly opaque. Be that as it may, the market is never a monolith. There will be plenty of individual winners and losers even if the S&P 500 flatlines over the course of the second half. Given the current environment, investors would do well to heed Kiplinger's strategies for investing in a directionless market.
