Stocks Pull Back After Midweek Highs as Fed Pause and Earnings Drive Sentiment

Equities ended the week mostly lower as investors parsed through a heavy slate of fourth-quarter earnings data, economic reports, high valuations and the Federal Reserve’s decision to maintain interest rates at their current levels. Several of the benchmark indexes hit notable highs midweek, with the S&P 500 surpassing the 7,000 level. Nevertheless, stocks generally retreated by the close of trading last Friday, with only the S&P 500 and the Global Dow able to end the week higher. Seven of the 11 market sectors closed the week higher, led by communication services and energy. Of the remaining sectors, health care saw the largest decline. Ten-year Treasury yields and the dollar were relatively unchanged from the previous week. Crude oil prices continued to trend higher, supported by rising geopolitical tensions.

FOMC Holds Rates as Inflation Stays Sticky and Job Growth Softens

In a 10-to-2 vote, the Federal Open Market Committee (FOMC) decided to maintain the federal funds target rate range at the current 3.50%-3.75%. Two members voted to reduce rates by 25.0 basis points. The Committee held rates unchanged following three consecutive 25.0-basis-point rate reductions, which brought rates to their lowest level since 2022. Policymakers noted that, although economic activity has been expanding at a solid pace and the unemployment rate has shown signs of stabilizing, job gains have remained low, and inflation has continued to be somewhat elevated. The FOMC indicated that it “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

Eye on the Week Ahead

The jobs report for January is out this week. Growth in the labor sector has slowed considerably over the past several months. There were only 50,000 new hires in December, and the unemployment rate ticked up to 4.4%.