U.S. stocks churned ahead 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) rose 0.4%, while the Dow Jones Industrial Average (^DJI) added 180 points, or 0.6%. The technology-heavy Nasdaq Composite (^IXIC) lagged, wavering around the flatline. Treasury yields continued their ascent, with the benchmark 10-year note back above 3.8% and the rate-sensitive 2-year yield inching towards 4.5%.
An assembly of Fed officials on Thursday pushed back against speculation that a pause on monetary tightening is close. The remarks made in separate speaking engagements across the country sent stocks and bonds into disarray after a fleeting uptrend propelled by lighter inflation data.
Inflation has only recently shown signs of moderation, with consumer and producer price data still stubbornly high despite retreating in October. Meanwhile, U.S. retail sales rose at the fastest clip in eight months over the same period, prompting policymakers to hammer down on strict messaging about the work still needed to be done to tamp down elevated costs.
Minneapolis Federal Reserve Bank President Neel Kashkari said in a Minnesota Chamber of Commerce event webcast that the extent 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 is looking at a terminal rate of up to 5.25%.
“Fed Chair Powell recalibrated monetary policy at the November FOMC meeting by adopting a new ‘speed vs. destination’ paradigm – indicating an intention to reach 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 an excessive and counter-productive loosening of financial conditions in the face of weaker-than-expected inflation.”
Goldman Sachs Group on Thursday also lifted its forecast for the Federal Reserve’s terminal rate to a range of 5% to 5.25%, tacking another 25-basis-point hike in May after increases of that size 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 string of small hikes next year,” economists led by Jan Hatzius also said.
Shares of Gap jumped 4% Friday after the company unveiled results that topped Wall Street estimates. Chief Financial Officer Katrina O’Connell, however, emphasized the macroeconomic environment remains challenging, but that Gap will take a “prudent approach in light of the uncertain consumer.”
Ross Stores shares rallied as much as 18%, the most in two years, after the retail chain beat on earnings forecasts and lifted its fourth-quarter guidance, citing sales momentum and improved assortments for the holidays.
Meanwhile, shares of home furnishings store Williams Sonoma sank nearly 6% after it pulled its guidance through 2024 over “macro uncertainty.”