The Federal Reserve came into 2023 with headline inflation at 6.5% and with interest rates already at 4.25%-4.5%. At this point, inflation had already come down from its peak of 9.1%, and analysts believed the central bank would only make one more hike — with the main rate peaking at 4.5%-4.75%.
With mortgage rates at multi-year highs and markets fearing a housing crash — there was every reason to believe stocks would have had a terrible year, while the U.S. dollar would rise to new highs.
However, the dollar index had already peaked at 114.78 in September 2022 as inflation sat around the 8% mark, while the S&P 500 hit its low a month later at 3,492.
The SPDR S&P 500 (NYSE:SPY), an exchange traded fund that tracks the index, bottomed out at 348 in the same month. Yet, over the course of 2023 to date, it has gained 21%.
Spurred by a staggering rally in tech stocks, the Invesco NASDAQ 100 ETF (NYSE:QQQM) rallied 50% over the year to date.
But a year ago, few were thinking Fed policy in 2023 could have driven such a strong subsequent performance for stocks. Below, we chart the turning points during 2023 that spurred such a performance.
January/February FOMC Meeting
On Feb. 1, the Fed raised the main rate to 4.5%-4.75% with inflation at 6.5%, but slowing. Stocks had risen into the New Year, but the hawkish message: ...