The S&P/ASX 200 Index (ASX: XJO) is off to a smashing start today.
Again.
In early trade, the benchmark index is up 0.58%.
That puts the ASX 200 up a remarkable 7.2% so far in 2023.
The latest push higher comes with a hearty thanks to the United States Federal Reserve.
ASX 200 charges higher on Fed rate call
Yesterday, overnight Aussie time, the Fed opted to raise the official US interest rate by 0.25%. That brings the Fed target rate to 4.75%.
Like the ASX 200 today, US markets celebrated the announcement. The S&P 500 rallied on the news, closing up 1.1% overnight. Tech stocks fared even better, with the NASDAQ Composite Index closing up 2%.
While markets are generally averse to rate hikes, the 0.25% increase comes after a 0.5% hike in December and four earlier 0.75% increases.
The more subdued hike this week comes as Fed chair Jerome Powell indicated inflation pressures are showing signs of easing. Though he warned a few more rate increases were on the horizon.
"We think we've covered a lot of ground. Even so, we have more work to do," Powell said following the announcement.
"Restoring price stability will likely require maintaining a restrictive stance for some time," he added.
The ASX 200 is following the bullish lead of US markets despite the prospect of more rate increases and higher rates "for some time" yet.
According to a statement released by the Fed, "The committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time."
What the experts are saying
Commenting on the Fed's decision that's helping push the ASX 200 higher today, co-founder of EQM Indexes Jane Edmondson said (courtesy of Bloomberg):
Markets seemed to be shrugging off the Fed's tough talk and celebrating that the rate hikes are smaller, and the end is in sight given that inflationary pressures seem to be abating. Still room for a soft landing that avoids a recession. I think the fact that the job market and corporate earnings have survived all these rate hikes is a testimony to underlying strength of the economy.
Chief global strategist for LPL Financial Quincy Krosby added:
Powell's comments, so far, have been more reassuring to the market in that he's acknowledged that they can possibly reach price stability without harming the labour market to get there. Moreover, he's laid out a clear roadmap for what the Fed is increasingly focused on, that is, disinflation to reach services.
Head of US economic research at Renaissance Macro Research LLC Neil Dutta cautioned that the lower increase today could lead to a larger correction down the road.
"Powell has said that financial conditions have tightened considerably despite the fact that they have eased considerably," he said. "The odds are increasing that the Fed is declaring victory too soon. The Fed's flirtation with the soft landing today increases the risk of a harder landing later."
As to how investors in US stocks should respond, partner at Advisors Capital Management JoAnne Feeney said (quoted by Bloomberg), "It remains time to be highly selective because some areas of the economy will contract further, while others continue to grow."
I reckon the same advice would serve ASX 200 investors well as we move ahead into 2023.
