Stocks finished lower Friday amid a hotter-than-expected reading for producer price inflation that could trigger broader concerns over the pace of Federal Reserve rate hikes as traders looked to close out a difficult week for domestic stocks highlighted by added concerns over a near-term recession.
Factory gate inflation rose 0.3% in November, the Commerce Department said, and 7.4% on the year, figures that essentially matched Street forecasts. Stripping out volatile energy costs, however, showed the reading was marked 0.4% higher on the month, doubling analysts' estimates, and 6.4% on the year, suggesting that inflation pressures continue to remand imbedded in the broader economy.
That reading was partly offset by a stronger-than-expected tally from the University of Michigan's closely-tracked consumer sentiment survey, which also showed the lowest levels in near-term inflation expectations in more than a year.
The S&P 500 lost 0.73%, while the Dow Jones Industrial Average ended down 305 points, or 0.90%, to 33,476. The tech-heavy Nasdaq gave up 0.70%.
The Dow posted its worst week since late September.
Benchmark 10-year Treasury note yields rose 8 basis points to 3.558% in early New York trading following the PPI data, while 2-year notes slipped to 4.315%. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.19% higher at 104.97.
Investors managed to snap a four-day losing streak Thursday, with the S&P 500 closing 0.75% higher in New York but settling just under the 4,000 point mark, a level that keeps its month-to-date decline at around 2.9%.
The gains were tempered, however, by a sharply inverted Treasury yield curve, where the gap between 3-month bills and 10-year notes, pegged at around 80 basis points, the steepest since 2001 and a worrying harbinger of recession risks.
According to a study from the San Francisco Federal Reserve, a sustained inverted yield curve has preceded all of the nine recessions the U.S. economy has suffered since 1955, making it an extremely accurate barometer of financial markets sentiment.
Investors are now focused on earnings prospects as they largely neutralize the Federal Reserve's rate hike plans -- which are expected to lift the benchmark Fed Funds rate to a range of between 5% and 5.25% by the spring of next year -- and focus on slowing inflation dynamics in the world's largest economy.
S&P 500 earnings are likely to decline by 5.5% this quarter--after stripping out the volatile energy sector--to a share-weighted total of around $454.6 billion. Refinitiv data, however, suggests a solid 9.9% rebound over 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, many of which are being loosened over the coming weeks, with factory gate prices contracting for a second consecutive month in November.
The anticipation of a boost from policymakers next year, aimed at reviving prospects in the world's second-largest economy, lifted China stocks into the close of trading and carried the MSCI ex-Japan benchmark to a solid 1.17% gain for the session.
In Europe, the Stoxx 600 was marked 0.69% higher, with gains blunted in part by caution ahead of next week's Federal Reserve rate decision on Wednesday and expectations of a hawkish follow-up from the European Central Bank on Thursday, when policymakers are likely to lift their benchmark refinancing rate by 50 basis points to 2.5%.
Stocks on the move in pre-market trading include Tesla (TSLA), which bounced 2.8% higher despite more reports of production cuts at its Shanghai factory in China.
Broadcom (AVGO) gained 2.6% after the chipmaker posted better-than-expected fourth quarter earnings and a solid near-term outlook as business spending on broadband and IT infrastructure continues to expand.
Lululemon (LULU) slumped 12.9% after the high-end athletic wear retailer forecast a softer holiday season, linked in part to a pullback in consumer spending, that clouded a solid third quarter earnings report.
Costco (COST) finished up 0.33%, following weaker-than-expected first quarter earnings as membership revenues missed Street forecasts amid a pullback in sales over the final weeks of autumn.
