Stocks finished lower Wednesday, while the dollar retreated against its global peers, as investors parsed comments from Federal Reserve Chairman Jerome Powell that indicated a balanced assessment of inflation and rate prospects in the world's biggest economy.
Powell, who participated in a question-and-answer session at the Economic Club of Washington, D.C. Tuesday, said he expects "significant declines" in inflation this year, but conceded that it will take "some time" before price pressures return to the Fed's 2% target.
He also noted that more rate hikes may be needed if economic data, particularly in the jobs market, were to persist, but did not indicate a Fed reaction beyond what has already been telegraphed in prior speeches and his press conference with reporters last week in Washington.
The CME Group's FedWatch suggests both a 90.1% chance of another 25 basis point rate hike from the Fed next month in Washington, with bets on a follow-on move in May -- that would take the Fed Funds rate to a range of between 5% and 5.25% -- rising to around 70.2%.
The sanguine tone, just days after the Labor Department showed January jobs creation topped 500,000, provided markets with another dose of optimism amid a strong start to the year for the S&P 500, lifting the benchmark by around 1.3% by the close of trading.
Market focus now is likely to shift to market technicals for the remainder of the week, particularly given the fact that the S&P 500 is trading close to the 4,100 point level and only a few bluechip earnings -- and no major data releases -- are slated for release.
Today's $35 billion 10-year Treasury note auction, however, provided insight into the market's appetite for fixed income paper amid bets on peaking inflation and sustained economic growth.
Investors bid $2.66 for every $1 of 10-year notes on offer from the Treasury, auction data indicated, a notably firmer tally than the 2.53 'bid-to-cover' ratio recorded at the last auction on January 11, when the yield was just 3.575%, and the highest since February of last year.
Bond yields were marked modestly lower from their closing highs yesterday, with benchmark 10-year notes trading at 3.627% and 2-year notes pegged at 4.435%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.05% higher at 103.48.
On Wall Street, the Dow Jones Industrial Average fell 207 points, 0.61%, 33,949, while the S&P 500 slipped 1.11%. The tech-focused Nasdaq was lost 1.68%.
In terms of individual stocks, Microsoft (MSFT) shares were active after the tech giant laid out a bullish case for its new AI investment drive and suggested the revamp of its Bing search engine could offer a significant challenge to Google's dominance in the $500 billion digital advertising market.
CVS Health (CVS) rose 3.47% after it posted stronger-than-expected fourth quarter earnings powered by outsized sales gains in its health-care-benefits division and solid retail pharmacy revenue, while confirming its $10.6 billion takeover of Oak Street Health (OSH).
Uber Technologies (UBER) rose 5.5% after it posted a narrower fourth quarter loss, alongside firmer ride revenues, and forecast solid near-term profits amid a return to normal commuting patterns and the ongoing travel and restaurant boom.
In overseas markets, Europe's Stoxx 600 was marked 0.28% higher by the close of Frankfurt trading, following on from last night's rally on Wall Street, while firmer commodity prices helped lift the FTSE 100 by around 0.26% in London.
Overnight in Asia, the region-wide MSCI ex-Japan index was marked 0.77% higher into the close of trading while the Nikkei 225 slipped 0.29% as the yen built gains against a weaker U.S. dollar.
