Fed Speak Makes Markets Weak

Prior to the opening bell, the S&P 500 futures began to decline ahead of the release of the Continuing and Initial Jobless Claims at 8:30 a.m. Eastern time. This slide was likely triggered by comments from Federal Reserve speaker Esther George, who stated that the Fed will hold rates at their current level through 2024 and preferred rates above 5% for an extended period. While George did not predict a recession, she acknowledged that the risk of one is high.

Soon after Esther George’s comments were released, the Continuing and Initial Jobless Claims data were also available. The Initial claims came in lower than the median forecast and the previous report of 223,000, with a reading of 204,000. While this data was generally positive for the economy, the market was more heavily influenced by George’s comments and continued to decline into the open. The Initial claims beat expectations, but the overall market put more weight on the Fed speaker’s remarks and reacted accordingly.

Opening Bell Brings Selling

The selling pressure persisted as the opening bell sounded, with the indices moving lower in unison. As the S&P 500 futures approached the level that has acted as significant support over the past several weeks, the selling stopped, and the 60-point decline ended. This will be a key level to watch in the coming sessions, as it may provide insight into the market’s ability to hold onto its recent gains or succumb to further selling pressure.

During the lowest point of the day’s session, Russia announced a temporary ceasefire in Ukraine from Jan. 6 to Jan. 7, lasting a total of 36 hours. Upon the release of this news, the market experienced a sharp spike back to the opening level and high of the day, around 3,850.

The remainder of the trading session was characterized by a seesaw-like movement between the levels of 3,820 and 3,850. As the market consolidated at the day’s low, another Federal Reserve speaker triggered a short rally that brought the S&P 500 futures back up to 3,850.

Bullard Extends Hand to Market, Market Declines

James Bullard, from the Federal Reserve Bank of St. Louis, stated that inflation is expected to moderate in 2023 but also acknowledged that it remains too high and that further rate hikes are likely to come. These comments sent the market off its lows and back toward the highs, but it was not enough to sustain a move through 3,850. This rally eventually dissipated during the power hour, leading the market to close near the day’s low. This volatility and the impact of statements from Fed officials will continue to be closely watched by traders in the coming sessions.

Market Catalysts on Friday 

Tomorrow’s Nonfarm Payroll report will be released before the market opens at 8:30 a.m. Eastern time. Later in the session, a number of Federal Reserve speakers will be making appearances from 11:15 a.m. to 1 p.m. Eastern time. If the market reacts to their comments in a similar manner to today, traders can expect some volatility in the latter half of the session. This will be a key event to watch, as the NFP report and Fed officials’ words could significantly impact market sentiment and direction.

Markets Concede First Green Day of 2023

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 closed down 1.15%, falling 44 points, while the Nasdaq closed down 1.44%, a decrease of 150 points. The Dow Jones followed, closing down 1.01%, declining 336 points.