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Market Snapshot: U.S. stocks attempt to nudge higher as investors weigh Fed response to persistent inflation

U.S. stock indexes were mostly higher Friday as investors weighed a sharp drop in consumer sentiment and a pickup in near-term inflation expectations as they continued to assess data released a day earlier showing consumer prices rose at the fastest pace in 40 years.

What’s happening

The Dow Jones Industrial Average
DJIA,
+0.16%

was up 140 points, or 0.4%, at 34,380.

The S&P 500
SPX,
-0.18%

rose 5 points, or 0.1%, to 4,509.

The Nasdaq Composite
COMP,
-0.55%

ticked down 10 points, or 0.1%, to 14,175.

On Thursday, the Dow Jones Industrial Average
DJIA,
+0.16%

fell 526 points, or 1.5%, while the S&P 500 dropped 1.8% and the Nasdaq Composite
COMP,
-0.55%

dropped 2.1%. All three major indexes remain on track for weekly gains.

What’s driving markets

Stocks opened with a modest push to the upside, but saw early gains trimmed after the University of Michigan’s preliminary February gauge of consumer sentiment fell to 61.7, from January’s level of 67.2, the lowest reading since October of 2011. Economists were expecting a reading of 67, according to economists surveyed by The Wall Street Journal.

Also, the survey found expectations for inflation over the next year rose to 5% from January’s expectation of 4.9%, the highest level since July of 2008, while inflation expectations over five years held steady at 3.1%.

Meanwhile, Thursday’s developments continued to reverberate. The Labor Department reported that consumer prices jumped 7.5% in the 12 months ending January, as St. Louis Fed President James Bullard talked about his willingness for the central bank to start with a 50-basis point hike in March — or possibly even a rate hike before its next scheduled meeting.

That lifted the 2-year Treasury yield
TMUBMUSD02Y,
1.581%

by 21 basis points — the largest single-day rise since June 5, 2009.

Other Fed speakers late Thursday played down the prospect of a half-point hike. Richmond Fed President Tom Barkin said he was open to the concept, but questioned whether there was a “screaming need” to do it. “I would have to be convinced on that,” he said at an event, according to Reuters. San Francisco Fed President Mary Daly was quoted as telling Market News International that a half-point move wasn’t her preference.

See: A ‘firestorm’ of hawkish Fed speculation erupts following strong U.S. inflation reading

Some market watchers argued that the market reaction to the inflation data and to Bullard’s comments might have ben overdone.

“The market tends to discount the most hawkish FOMC (Federal Open Market Committee) member in a rising rate environment, but policy is ultimately likely to reflect the median of the whole policy-setting committee,” said Alex Pelle, U.S. economist at Mizuho Securities, in a note.

“The FOMC is likely to seek consensus — both formally and informally — as it lifts rates for the first time in several years. High inflation will weigh on some policy makers’ views, but a flatter curve will give many other policy makers pause, too,” he said.

Jim Reid, a strategist at Deutsche Bank, says it might be increasingly difficult for the U.S. economy to avoid falling into recession.

“With the surging U.S. CPI print yesterday the risks have to be skewed toward the U.S. curve inverting even earlier than that and starting the countdown clock earlier,” he said.

The University of Michigan’s consumer sentiment index for February is due for release at 10 a.m. Eastern, and will include a look at five-year inflation expectations.

Companies in focus

Under Armour Inc.
UAA,
-9.42%

reported earnings and revenue that topped expectations. Shares of the athletic-apparel company fell nearly 10%.

Shares of Goodyear Tire & Rubber Co.
GT,
-22.75%

dropped nearly 23% despitereporting a much stronger-than-expected rise in profits.

Other assets

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.045%

fell 0.5 basis point to 2.024%. Yields and debt prices move opposite each other.

The ICE U.S. Dollar Index
DXY,
+0.19%
,
a measure of the currency against a basket of six major rivals, rose 0.2%.

Bitcoin
BTCUSD,
-0.31%

rose 0.6%.

Oil futures moved higher, with the U.S. benchmark
CL.1,
+1.94%

up 1.8% at $91.52 a barrel, while gold futures
GC00,
-0.19%

edged down 0.1%.

The Stoxx 600 Europe Index
SXXP,
-0.59%

fell 0.4%, while London’s FTSE 100
UKX,
-0.15%

edged down 0.1%.

The Shanghai Composite
SHCOMP,
-0.66%

fell 0.7%, while the Hang Seng Index
HSI,
-0.07%

shed 0.1% in Hong Kong.

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