Markets: News  

By Vivien Lou Chen and Joseph Adinolfi

U.S. stocks finished near session lows after giving up all of their earlier gains on Monday, as investors evaluated a mixed batch of views from Federal Reserve officials and appeared to lose faith in an extended rally on the back of last week's cooler-than-expected inflation data.

How stocks traded

Stocks had risen sharply late last week, with the Nasdaq Composite advancing 9.4% in two days to cement its biggest weekly advance since at least March, while the S&P 500 clinched its best such performance since June.

What drove markets

Stocks lost upward momentum late Monday as investors appeared to give up on the notion that last week's rally, inspired by softer-than-anticipated October inflation data, might still have some more room to run.

Signs of cooling inflation in Thursday's consumer prices data had bolstered hopes that the Federal Reserve may not need to continue raising borrowing costs at such an aggressive pace. The Fed's No. 2 official, Lael Brainard, seemed to confirm as much, by telling Bloomberg in an interview that it may be appropriate soon for policy makers to slow down their current pace of rate hikes.

"We have to take a look at what the market has done over the last couple of weeks," said Edward Moya, senior market analyst for the Americas at OANDA Corp. "Equities have clearly stabilized and it's all because of expectations that the Fed is about to end its tightening cycle after February."

"Now we are at a weird stage where investors need to see inflation soften, which means you are not going to see strong positioning until we get the next inflation report," Moya said via phone. "That's going to make it a choppy environment for stocks until there's further clarity if the Fed is done with raising rates or will have to continue. Officials need to see labor-market weakness and we are finally getting signs of that, too."

Jim Reid, head of thematic research at Deutsche Bank (DBK.XE), and others point out in a note to clients that the inflation report wasn't the only factor that helped set up stocks and other risk-sensitive assets for a rebound earlier in the day.

"Impressive levels of European gas storage due to the weather, very short positioning in US equities, mid-terms being out the way, positive seasonals, less event risk in the Russian/Ukraine war, and now softer U.S. inflation than expected are all helping," Reid said.

Some of the worst-hit technology stocks rallied as investors welcomed signs that they may be reining in their profligate spending. Meta Platforms (META), for example, finished up by 1.1% as it cuts its staff count.

Government bond markets resumed trading on Monday, after being closed Friday for the Veterans Day holiday, with the yield on the 10-year note up 3.7 basis points at 3.87%.

Over the weekend, Fed Gov. Christopher Waller said financial markets seem to have overreacted to the softer-than-expected October consumer price inflation data last week, and that "we've got a ways to go."

"Last week's euphoria has failed to follow through into this week. Inflation-data-inspired optimism that the Fed could be less aggressive hiking rates was met with a reality check from a slew of Fed speakers today, who reminded the market that the battle against inflation was far from over," said Fiona Cincotta, senior market analyst for City Index in London."The reality is that one cooler core inflation print by no means constitutes a new trend. Patience is needed for further confirmation that core prices are falling on an ongoing basis," Cincotta wrote in an email to MarketWatch. With October's producer-price index out on Tuesday, "inflation is likely to remain a hot topic over the coming days."

See: Stock-market rally despite FTX blowup, Facebook-parent's layoffs, says investors may be whistling past recession's graveyard

Single-market movers

-- Jamie Chisholm contributed to this article.

-Vivien Lou Chen

(END) Dow Jones Newswires

November 14, 2022 16:33 ET (21:33 GMT)

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