US stocks bobbed on Friday as investors neared the end of a turbulent trading week marked by mixed retail gains and a chorus of hawkish Fedspeak.
The S&P 500 (^GSPC) fell 0.1%, while the Dow Jones Industrial Average (^DJI) gained 60 points, or 0.2%. The tech-heavy Nasdaq Composite (^IXIC) slipped 0.6%. Government bond yields continued to rise, with the benchmark 10-year heading back above 3.8% and the interest-sensitive 2-year yield heading to 4.5%.
A gathering of Fed officials on Thursday dismissed speculation that a pause in monetary tightening was imminent. The remarks, made in separate presentations across the country, threw stocks and bonds into disarray after a fleeting uptrend fueled by lighter inflation data.
Inflation has only recently shown signs of slowing, with consumer and producer price data still stubbornly high despite falling in October. Meanwhile, US retail sales rose at their fastest pace in eight months over the same period, prompting policymakers to announce tough messages about work still to be done to bring down elevated costs.
Minneapolis Federal Reserve Bank President Neel Kashkari said in a webcast of an event hosted by the Minnesota Chamber of Commerce that the extent to which policymakers expect to raise their federal funds rate remains an “open question.” His comments came after St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly said the central bank is targeting a final interest rate of up to 5.25%.
“Fed Chair Powell recalibrated monetary policy at the November FOMC meeting by embracing a new “velocity vs. target” paradigm – indicating an intention to achieve a higher final money rate while doing so at a slower one Pace happens,” EY Parthenon chief economist Gregory Daco said in a note. “The difficulty for the Fed will be to avoid excessive and counterproductive easing of financial conditions in the face of weaker than expected inflation.”
Goldman Sachs Group on Thursday also raised its forecast for the Federal Reserve’s final interest rate to a range of 5% to 5.25% and another 25 basis point raise in May after increases of that magnitude in February and March and a half a percentage point in Attacked in December.
“Inflation is likely to remain uncomfortably high for a while longer, and this could put pressure on the FOMC to make a prolonged series of smaller hikes next year,” economists led by Jan Hatzius also said.
Gap (GPS), Ross Stores (ROST) and Williams-Sonoma (WSM) rounded out a busy week of retail gains in the shadow of renewed interest rate volatility.
Shares of Gap rose 3% on Friday after the company released results that beat Wall Street estimates. However, Chief Financial Officer Katrina O’Connell emphasized that while the macroeconomic environment remains challenging, Gap will take a “prudent approach in the face of uncertain consumers”.
Ross Stores shares rose as much as 18%, the strongest in two years, after the retail chain beat earnings forecasts and raised its fourth-quarter guidance citing sales momentum and improved assortments for the holiday season.
Meanwhile, shares of home furnishing retailer Williams Sonoma fell nearly 10% after it withdrew its guidance through 2024 amid “macro uncertainty.”
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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