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Today’s Stock Market: Stocks Rise Despite Hot PPI and Sentiment Data Ahead of Fed Meeting

Wall Street hopes to end a difficult week with modest gains on Friday ahead of the year’s final Fed meeting and uncertain growth and inflation prospects.

U.S. stocks increased on Friday despite a hotter-than-expected reading for producer price inflation, which could spark broader concerns over the pace of Federal Reserve rate hikes. Traders were looking to close out a difficult week for domestic stocks, highlighted by heightened fears of an imminent recession.

The Commerce Department reported that factory gate inflation rose 0.3% in November and 7.4% annually, which essentially matched Wall Street’s expectations. Excluding volatile energy costs, however, the reading was 0.4% higher on the month, more than doubling analysts’ expectations, and 6.4% higher on the year, indicating that inflationary pressures remain embedded in the broader economy.

This reading was partially offset by a stronger-than-expected result from a closely followed consumer sentiment survey conducted by the University of Michigan, which revealed the lowest near-term inflation expectations in more than a year.

In early afternoon trading, the S&P 500 was up 5 points while the Dow Jones Industrial Average fell 15 points. The technology-focused Nasdaq gained 33 points.

In the wake of the PPI data, benchmark 10-year Treasury note yields rose 8 basis points to 3.558% in early New York trading, while 2-year notes declined to 4.318%. At 104.990, the U.S. dollar index, which measures the greenback against a basket of six global currencies, was up 0.2%.

Investors were able to end a four-day losing streak last night, with the S&P 500 closing 0.75 percent higher in New York but just below 4,000 points, a level that keeps its month-to-date decline around 2.9%.

The gains were tempered, however, by a sharply inverted Treasury yield curve, where the spread between 3-month bills and 10-year notes was around 80 basis points, the largest since 2001 and a concerning indicator of recessionary risks.

According to a study by the Federal Reserve Bank of San Francisco, a sustained inverted yield curve has preceded each of the nine recessions experienced by the U.S. economy since 1955, making it a highly accurate indicator of market sentiment.

As investors largely neutralize the Federal Reserve’s rate hike plans — which are expected to raise the benchmark Fed Funds rate to a range of 5% to 5.25% by the spring of next year — and focus on slowing inflation dynamics in the world’s largest economy, they are now focused on earnings prospects.

After excluding the volatile energy sector, S&P 500 earnings are expected to decline by 5.5% this quarter to a share-weighted total of approximately $454.6 billion. However, Refinitiv data indicates a 9.9% increase in the first three months of next year.

Overnight in Asia, weakening inflation data from China underscored the economic damage caused by Beijing’s ‘zero Covid’ health policies, with factory gate prices falling for a second consecutive month in November.

The expectation of a boost from policymakers next year, aimed at reviving the outlook for the world’s second-largest economy, boosted China stocks into the close of trading and propelled the MSCI ex-Japan benchmark to a solid 1.17 percent gain for the session.

In Europe, the Stoxx 600 was up 0.69%, with gains tempered in part by caution ahead of next week’s Federal Reserve rate decision on Wednesday and expectations of a hawkish response from the European Central Bank on Thursday, when policymakers are likely to raise their benchmark refinancing rate by 50 basis points to 2.5%.

Tesla (TSLA) – Get Free Report jumped 2.8% in pre-market trading, despite additional reports of production cuts at its Shanghai factory in China.

Broadcom (AVGO) – Get Free Report gained 3.4% after the chipmaker reported better-than-expected fourth-quarter earnings and a solid near-term outlook as business spending on broadband and IT infrastructure expands.

Lululemon (LULU) – Get Free Report fell 12.5% after the high-end athletic wear retailer forecasted a weaker holiday season, in part due to a slowdown in consumer spending, which overshadowed a solid third-quarter earnings report.

Costco (COST) – Get Free Report was also lower, but by only 0.2%, as a result of weaker-than-anticipated first-quarter earnings as membership revenues missed Wall Street’s projections amidst a decline in autumn sales.

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