U.S. stocks swung back and forth on Friday as investors neared the end of a turbulent trading week marked by mixed retail earnings and a chorus of hawkish Fedspeak.
The S&P 500 (^GSPC) fell 0.1%, while the Dow Jones Industrial Average (^DJI) rose 60 points, or 0.2%. The tech-heavy Nasdaq Composite (^IXIC) slipped 0.6%. Treasury yields continued to climb, with the benchmark 10-year note returning above 3.8% and the rate-sensitive 2-year yield approaching 4.5%.
A panel of Fed officials pushed back on Thursday on speculation that a pause in monetary tightening is near. The remarks made in separate speaking engagements across the country threw stocks and bonds into disarray after a fleeting uptrend propelled by softer inflation data.
Inflation has only recently shown signs of moderating, with consumer and producer price data remaining stubbornly elevated despite falling in October. Meanwhile, U.S. retail sales grew at the fastest pace in eight months over the same period, prompting policymakers to insist on tough messages about the work that still needs to be done to curb high costs. .
Minneapolis Federal Reserve Chairman Neel Kashkari told a Minnesota Chamber of Commerce webcast that how much policymakers expect to raise their key federal funds rate remains an “open question.” . His comments came after St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly each said the central bank was considering a terminal rate of up to 5.25%.
“Fed Chairman Powell recalibrated monetary policy at the November FOMC meeting by adopting a new “velocity vs. destination’ – indicating an intention to achieve a higher terminal fed funds rate while doing so at a slower pace,” EY Parthenon chief economist Gregory Daco said in a note. “The difficulty for the Fed will be to prevent excessive and counterproductive easing of financial conditions in the face of weaker-than-expected inflation.”
The Goldman Sachs group also raised its forecast for the Federal Reserve terminal rate on Thursday to a range of 5% to 5.25%, starting another 25 basis point hike in May after increases of this magnitude in February and March, and half a percentage point in December.
“Inflation is likely to remain uncomfortably high for some time, and this could put pressure on the FOMC to make a longer series of small hikes next year,” the economists led by Jan Hatzius also said.
In the shadow of further rate turmoil, Gap (GPS), Ross Stores (ROST) and Williams-Sonoma (WSM) ended a busy week of retail profits.
Gap shares jumped 3% on Friday after the company reported results that beat Wall Street estimates. Chief Financial Officer Katrina O’Connell, however, stressed that the macroeconomic environment remains challenging, but that Gap will take a “cautious approach given consumer uncertainty”.
Shares of Ross Stores rose 18%, the most in two years, after the retail chain beat profit forecasts and raised its fourth-quarter guidance, citing sales momentum and improving assortments for holidays.
Meanwhile, shares of furniture store Williams Sonoma fell nearly 10% after it withdrew its forecast to 2024 due to “macro uncertainty”.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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