Explore Topics and Trends impacting today's markets

U.S. equity indexes, having declined sharply in 2022, are fighting the Fed as 2023 begins. Previous equity rallies, after a disruptive event, began with strong support as the Fed provided significant accommodation. This time may be considerably bumpier.


Based on Fed guidance, a peak federal funds rate between 4.75% and 5.50% seems likely to be achieved early in this year. Once the Fed acknowledges that it has reached a sufficiently restrictive rate at which it can pause, the Fed’s “hawkish inflation-fighting mantra” will shift back to a “data dependency” narrative, at which time market participants are likely to breathe a sigh of relief.

The inverted yield curve argues for recession, and equities appear to have discounted a significant probability of at least a mild recession. But, second half U.S. real GDP was solidly positive, and jobs data suggests a recession is not inevitable. 

Consumption falters when job losses are happening. That is clearly not the case as 2023 commences. Job openings are abundant in hospitality and tourism, while cutbacks are coming in Silicon Valley and on Wall Street. On net, jobs are still growing, and the widely forecasted recession of 2023 may not occur at all. We are closely watching new unemployment insurance claims, and they show no signs of recession as we enter 2023.

The bottom line is that unlike the last four equity rallies of the 1990s, the early 2000s, 2010-2019, and the post-pandemic rally of 2020-2021, any equity rally this time around will have to fight the Fed. Yet, sentiment in early 2023 does appear to be shifting to a more positive state, given all the bad news absorbed by equities in 2022. Without the Fed’s support though, this rally, if it happens, will not look anything like the last four equity rallies. Elevated volatility and more frequent setbacks are likely to remain significant features of the equity markets.



OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).

©2024 CME Group Inc. All rights reserved