By Isabel Wang and William Watts
Gold futures book best daily performance since April 2020
U.S. stocks finished a choppy session mostly lower on Thursday after the ISM manufacturing index showed American factory activities contracted to a 30-month low in November.
Stocks had opened mostly higher Thursday after the Federal Reserve's preferred inflation measure showed price pressures cooling in October, while reports suggested China is taking steps to relax its COVID restrictions to allow its economy to recover.
Investors now await November jobs data on Friday that could determine the pace of the central bank's interest-rate hikes.
How stock indexes traded
On Wednesday, the Dow rose 737 points, or 2.2%, to officially exit a bear market, while the S&P 500 jumped 3.1%, and the Nasdaq Composite advanced 4.4%. The Dow rose 20.4% during October and November, the biggest two-month percentage gain since July 1938, according to Dow Jones Market Data.
What drove markets
The Institute for Supply Management's manufacturing index, a key barometer of activity at American factories, fell to 49% in November, down from 50.2% in October. The ISM report is viewed as a window into the health of the economy, and numbers below 50% signal the economy is contracting.
Stocks turned down on profit-taking after Wednesday's big jump, said Michael Hewson, chief market analyst at CMC Markets, in a note, while the ISM data underlined expectations the Fed has room to slow down the pace of rate increases.
"This peak inflation, softer growth narrative was reinforced by the ISM manufacturing survey which fell into contraction territory for the first time since May 2020, while prices paid fell to 43, and employment also contracted at 48.4," he wrote.
Earlier, a gauge of U.S. inflation, the personal-consumption expenditures index, rose a modest 0.3% in October, adding another piece of evidence that points to slowly easing price pressures. The yearly rate of inflation slowed to 6% in October from 6.2% in the prior month and a 40-year high of 7% last summer. The core gauge that strips out volatile food and energy costs, rose 0.2% last month, below the consensus estimate of 0.3% collected from economists by Dow Jones.
"We're watching the inflation data closely and the most important inflation report of the year is going to be the CPI report on December 12, which could confirm the downtrend in inflation, which was first observed on November 10 (and which ignited a 5.5% single-day gain in the S&P 500)," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
"On the other hand, if inflation surprises to the upside on December 12, then all bets are off and we could see a sell-off into year-end -- especially if the Fed decides to raise by 75 bps the next day, instead of the 50 bps which everyone is counting on," he added.
Federal Reserve's Federal Open Market Committee (FOMC) is meeting on December 13-14 to decide on the magnitude of the next rate hike.
See:Global financial markets having 'awful year' despite 'great' November for most assets, says Deutsche Bank
Stocks jumped Wednesday with the S&P 500 surging 3.1% following the Powell's confirmation that a lower pace of interest rate hikes to combat inflation was more likely in coming months. It took the U.S. stock benchmark's gains since its 2022 low in mid-October to 14.1%, after recent signs of easing price pressures had encouraged risk appetite once more.
"The general upbeat feeling since last month's soft CPI print has carried into December after stocks surged thanks to a speech from Fed Chair Powell," said Stephen Innes, managing partner at SPI Asset Management. "With markets increasingly predisposed to a terminal rate below 5% and inflation getting back close to target in 2024, the stock market's rally could extend as pivot hopes should increase with interest rate risk now disproportionately skewed to the downside."
"With so much money on the sidelines, fund managers may need to move into catch-up mode, so I suspect the market makers will position to get ahead of this flow in the new year so that the stock market dips will be shallow," Innes added.
New York Federal Reserve President John Williams said on Thursday that the central bank is seeing some "forward looking indicators that inflation is turning," but it will take years to get inflation all the back down to 2%. The personal consumption expenditure price index was running at a 6% annual pace in November.
Read: Dollar set to finish below key level for first time since June 2021, signaling its rally could be over
Two-year treasury yields , which are particularly sensitive to monetary policy trends, continued to edge lower after the inflation data. The dip in yields has taken the shine off the dollar index , which dropped 1.2% to 104.72, its lowest since August.
Gold futures jumped 3.1% on Thursday with the most-active contract settling at its highest level since August. It was also the largest one-day percentage gain since April 2020, according to Dow Jones Market Data.
Meanwhile, more Chinese cities eased antivirus restrictions and police patrolled their streets Thursday as the government tried to defuse public anger over some of the world's most stringent COVID measures and head off more protests.
Companies in focus
-- Jamie Chisholm contributed to this article.
(END) Dow Jones Newswires
December 01, 2022 16:27 ET (21:27 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.