US stocks moved back and forth on Friday as investors approached the end of a turbulent trading week marked by mixed retail earnings and a chorus of a hawkish Federal Reserve.
The S&P 500 (^GSPC) was down 0.1%, while the Dow Jones Industrial Average (^DJI) was up 60 points, or 0.2%. The technology-heavy Nasdaq Composite (^IXIC) fell 0.6%. Treasury yields continued their climb, with the benchmark 10-year note back above 3.8% and the two-year rate-sensitive yield jumping towards 4.5%.
A meeting of Federal Reserve officials on Thursday dismissed speculation that a temporary pause in monetary tightening was imminent. The remarks, made in separate posts across the country, sent stocks and bonds into a tailspin after a fleeting bull run spurred by the softer inflation data.
Inflation has recently shown only signs of moderating, with consumer and producer price data continuing to rise despite the downturn in October. Meanwhile, US retail sales rose at the fastest rate in eight months over the same period, prompting policymakers to tone down tough messages about the work that still needs to be done to bring down soaring costs.
The extent to which policymakers expect to raise the key federal funds rate remains an “open question,” Minneapolis Fed President Neel Kashkari said at a web event at the Minnesota Chamber of Commerce. His comments came after St. Louis Federal Reserve Bank President James Bullard and San Francisco Fed President Mary Daley both said the central bank was looking at an interest rate as high as 5.25%.
“Federal Reserve Chair Powell recalibrated monetary policy at the November FOMC meeting by adopting a new velocity versus destination model — signaling the intent to reach a higher federal funds rate while doing so at a slower pace,” he said in a note. “The difficulty for the Fed will be to prevent excessive and reverse easing of financial conditions in the face of weaker-than-expected inflation.”
Goldman Sachs Group also on Thursday raised its forecast for the Fed’s final interest rate to a range of 5% to 5.25%, outperforming another 25 basis point increase in May after increases of that magnitude in February and March and half a percentage point. in December.
“Inflation is likely to remain uncomfortably high for a while, and this could put pressure on the FOMC to deliver a longer series of small hikes next year,” said economists led by Jan Hatzius.
Amid renewed price tensions, Gap (GPS), Ross Stores (ROST) and Williams-Sonoma (WSM) rounded off a busy week of retail earnings.
Gap shares jumped 3% on Friday after the company reported results that beat Wall Street estimates. However, Chief Financial Officer Katrina O’Connell stressed that the macroeconomic environment remains challenging, but that Gap will take a “prudent approach in light of the uncertain consumer.”
Shares of Ross Stores rose 18%, the biggest rise in two years, after the retail chain beat earnings expectations and raised fourth-quarter guidance, citing sales momentum and improved holiday assortments.
Meanwhile, shares of home furnishings retailer Williams-Sonoma sank nearly 10% after it withdrew guidance through 2024 due to “macro uncertainty.”
Alexandra Semenova is a correspondent at Yahoo Finance. Follow her on Twitter @tweet
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