"Investor optimism had already been hit by a slow puncture this week but it's deflating more rapidly as the latest data indicates that the work in taming inflation is far from over," Susannah Streeter, head of money and markets at Hargreaves Lansdown, said in a note. The Fed rate announcement is seen on a screen on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., February 1, 2023. Wilson's forecast sees the S&P 500 bottoming out at 3,000 this year. "The bear market rally that began in October from reasonable prices and low expectations has morphed into a speculative frenzy based on a Fed pause/pivot that isn't coming," Morgan Stanley's top strategist Mike Wilson said in a note to clients last week. The hotter-than-expected PCE index followed upside surprises to inflation this year from the Consumer Price Index (CPI) and producer prices, which showed the largest increases in several months to start the year. The week marked a turning point in sentiment around inflation expectations and the path forward for interest rates. On a "core" basis, which strips out volatile food and energy components, prices rose 0.6% for the month and at an annual clip of 4.7%. On Friday, the Personal Consumption Expenditures (PCE) price index - the Fed's preferred assessment of how quickly prices are rising across the economy - showed prices rose 0.6% during the month of January and 5.4% over last year.
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