The S&P 500 last Friday ended the week up 1.6%, as sentiment improved after the Federal Reserve met on Wednesday. The S&P 500 has posted gains in four out of five weeks of 2023. However, while Fed President Powell said progress had been made against inflation, a surprisingly robust jobs report raised fears that the Fed will keep rates higher for longer as labor market issues persist.

As expected, the Federal Reserve hiked its policy rate by 25 basis points to 4.50%-4.75% on Wednesday, slowing the rapid tightening campaign that had hurt stocks and other assets in 2022. "We've [now] raised rates four and a half percentage points, and we're talking about a couple of more rate hikes to get to that level we think is appropriately restrictive," Fed Chair Powell declared. "Why do we think that's probably necessary? We think because inflation is still running very hot." While the central bank continued to stress that it would be data-dependent, investors are already seeing the potential for a rate cut as early as 2nd quarter 2024.

Investors reviewed a host of economic data including an unexpected drop in initial jobless claims. Nonfarm payrolls shocked with a 517k rise, not only more than doubling 188k consensus forecast but slamming the ADP rise of 106k reported on Wednesday. The huge payroll increase in the establishment survey was compounded by a new low in the unemployment rate, which fell from 3.5% to 3.4%, a new 54-year low. Despite some possible seasonal distortion in this report, there is no doubt the job market remains strong.

Last week was filled with disappointing earnings from Wall Street behemoths, including Amazon, Apple, and Alphabet. However, Meta and GM both reported stronger results. As earnings season continues, reports from Walt Disney, Uber and PepsiCo this week will be among those closely watched. President Biden delivers the State of the Union address at 9 p.m. Eastern Tuesday, his first speech to a Republican-controlled House. The latest consumer sentiment data from the University of Michigan is scheduled for release Friday. Chinese consumer and producer price index results, as well as British G.D.P. numbers, round out a big week for economic data.