Updated at 4:15 pm EST
Socks finished mixed Thursday, following on from one of the strongest rallies on Wall Street in two months, as investors looked to a key inflation reading that could add weight to a long-awaited clarification on rate hikes from Fed Chairman Jerome Powell.
Powell set markets alight yesterday during a speech at the Brookings Institution in Washington, where he said that the central bank could consider smaller rate hikes, likely as early as December, as it monitors the impact of its inflation fight on the broader economy.
"Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt," Powell said. "Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.
The remarks, as well as his suggestion that the Fed could execute a so-called 'soft landing' for the economy that includes slowing inflation while avoid recession, triggered a sharp turnaround in stocks yesterday, with the S&P 500 rising 3.09% to close above its 200-day moving average -- a key measure of performance for technical analysts -- for the first time since early April.
His comments were given added support from a softer-than-expected reading of the Fed's preferred inflation gauge, the PCE Price Index, for the month of October.
The September core PCE Price Index rose 5% from last year, down from the 5.1% pace recorded in September and essentially matching the consensus Street forecast of 5%. The core index was up 0.2% on the month, the Bureau of Economic Analysis reported, a big decline from September that came in inside analysts' forecasts
Traders are now re-setting assumptions for the Fed's next policy meeting, which ends on December 14, and are now pricing in a 77% chance of a 50 basis point rate hike, an increase that would take the Fed Funds rate to a range of between 4.25% and 4.5%.
The U.S. dollar index extended its retreat in overnight trading, falling another 1.16% to 104.72 in late Thursday trading, the lowest since early August, while benchmark 10-year notes backed up to 3.505%.
On Wall Street, the Dow Jones Industrial Average ended off 195 points, or 0.6%, to 34,395, while the S&P 500 slipped 0.1%. The tech-heavy Nasdaq gained 0.13%.
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In terms of individual stocks, Salesforce (CRM) - Get Free Report fell 8.1% after it said co-CEO Bret Taylor will leave the enterprise software group, clouding a firmer-than-expected third quarter earnings report.
Dollar General (DG) - Get Free Report shares were also sharply lower, ending down 7.5%, after the discount-focused retailer posted weaker-than-expected third-quarter earnings, while cutting its full-year outlook, as transport costs and supply chain disruptions clipped profit margins.
On the flipside, Five Below (FIVE) - Get Free Report shares surged 16.6% after it posted stronger-than-expected third-quarter earnings and noted the sales continued to accelerate over the final weeks of the period.
Overnight in Asia, reports of planned changes in China's Covid policies, including an allowance for home quarantine and reduced mass testing, revived hopes of a broader re-opening in the new year and lifted stocks in both Shanghai and elsewhere.
The region-wide MSCI ex-Japan index was marked 1.4% higher by the close of trading while Europe's Stoxx 600 ended 0.76% higher in Frankfurt trading as part of a follow-on rally to last night's close on Wall Street. London's FTSE 100 closed 0.2% lower in London as the pound rose to 1.2249 against the fading greenback.