Stocks finished higher Thursday, while the dollar held firm against its global peers, as investors continue to worry that the Federal Reserve will fail to engineer the 'soft landing' needed to tame inflation pressures while avoiding falling into recession.
With stocks riding a five-day losing streak, giving back most of the gains recorded since the softer-than-expected inflation reading in early November, markets appear to be setting up for a scenario in which the Fed's rate tightening cycle -- as well as the run off of its $8.6 trillion balance sheet -- tips the economy into recession as labor markets crack, housing rolls over and corporate earnings turn negative.
Amid those concerns, Treasury bonds yields continue to show a severe inversion of the yields between benchmark 2-year and 10-year note yields -- a classic recession signal -- even as the latter rallied hard yesterday, and again overnight, to bring yields on the paper to 3.441%.
The CME Group's FedWatch continues to suggest a high chance of a 50 basis point rate hike next week in Washington, which would lift the Fed Funds rate to a range of between 4.25% to 4.5%, but bets on a 75 basis point hike were last marked at 25.3%, up from around 20% this time last week.
A defensive tone to the overnight session, which included data confirming an economic contraction in Japan and more concerns over the impact of 'Covid zero' policies in China, lifted the U.S. dollar index 0.05% to 105.124 against a basket of its global peers.
The market's key volatility gauge, the VIX index, has also been creeping higher this week, and rose 2.8% in the overnight session to 22.8 points, a level that suggest traders are expecting daily price swings of around 57 points for the S&P 500 over the next month.
On Wall Street, the S&P 500 gained 0.75%, while the Dow Jones Industrial Average finished up 182 points, or 0.54%, to 33,780. The tech-focused Nasdaq rose 1.13%.
In terms of individual stocks, GameStop (GME) soared 11.3% even after the video game retailer posted its seventh consecutive quarterly loss amid fading demand and elevated cost pressures.
Tesla (TSLA) finished slightly lower after an earlier rise on reports that bankers are preparing to ask Elon Musk to pledge more of his stock in the clean-energy carmaker against loans linked to his $44 billion purchase of Twitter.
Costco Wholesale, (COST) meanwhile, edged modestly lower ahead of of the bulk discount retailer's first quarter earnings after the close of trading, with investors likely focused on plans to boost its lucrative membership fees and improving its core profit margins.
European stocks drifted lower, as well, extending the Stoxx 600's recent slump to a fourth consecutive session, falling 022% in mid-day Frankfurt trading while oil prices bounced off their recent nine months lows to take WTI crude future for January delivery to $734.39 per barrel.
