US stocks rallied Friday’s open as investors approached the end of a turbulent trading week marked by mixed retail earnings and a chorus of aggressive Fedspeak.
The S&P 500 (^GSPC) rose 0.8%, while the Dow Jones Industrial Average (^DJI) added 250 points, or 0.7%. The technology-heavy Nasdaq Composite (^IXIC) was up 0.9%. Government bond yields continued to rise, with the 10-year benchmark rising above 3.8% and the rate-sensitive 2-year yield moving towards 4.5%.
A gathering of Fed officials on Thursday opposed speculation that a pause in monetary tightening is imminent. The comments made at separate speaking engagements across the country confused stocks and bonds after a volatile uptrend propelled by lighter inflation data.
Inflation has only recently shown signs of moderation, with consumer and producer prices still stubbornly high despite a setback in October. Meanwhile, US retail sales rose at the fastest clip in eight months during the same period, prompting policymakers to issue strict messages about the work still to be done to curb high costs.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said in a webcast from the Minnesota Chamber of Commerce that the extent to which policymakers expect to increase 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 final rate of up to 5.25%.
Fed Chairman Powell recalibrated monetary policy at November’s FOMC meeting by adopting a new ‘speed vs. destination’ paradigm – signaling he intends 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 avoid an excessive and counterproductive easing of financial conditions in the face of weaker-than-expected inflation.”
Goldman Sachs Group also on Thursday raised its forecast for the Federal Reserve’s final interest rate to a range of 5% to 5.25%, raising another 25 basis points 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 push for a longer series of small increases next year,” economists led by Jan Hatzius said.
In the shadow of renewed tariff jitters, Gap (GPS), Ross Stores (ROST) and Williams-Sonoma (WSM) wrapped up a busy week of retail earnings.
Shares of Gap rose 9% Friday morning after the company revealed 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 “cautious approach in light of the uncertain consumer.”
Shares of Ross Stores rose 16% after the retailer beat earnings forecasts and raised fourth-quarter expectations, citing sales momentum and improved holiday assortments.
Meanwhile, shares of home furnishing retailer Williams Sonoma fell nearly 9% after it extended its guidance through 2024 due to “macro uncertainty.”
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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