US equity indices were mixed in choppy trade after producer prices rose more than forecast in November while inflation expectations fell over the near term, backing the argument for a slower speed of rate hikes but an elevated ultimate policy level.
The Nasdaq Composite was little changed at 11,082.1 after trading higher earlier in the session on Friday. The S&P 500 slipped 0.1% to 3,959.6 and the Dow Jones Industrial Average fell 0.2% to 33,702.2, both indices giving up intraday gains. The communication services sector was among the top gainers, while energy and healthcare were the steepest decliners.
The producer price index grew 0.3% in November, unchanged for the third month in a row but still higher than market expectations for a 0.2% gain.
The larger-than-expected increase reinforces the notion that there is still substantially more work to be done before the Fed has clearly reinstated price stability, according to a Stifel note Friday.
"Looking out to 2023, while the market is increasingly accepting of a terminal rate potentially in the range of 5%-5.5%, even at the upper bound of such a range, this may be severely understating the substantially restrictive level needed to quell inflation," Stifel Chief Economist Lindsey Piegza said.
The US 10-year yield jumped 7.2 basis points to 3.57%, while the two-year rate, which tends to align more closely with Federal Reserve policy, was marginally up at 4.32% intraday.
The December University of Michigan Consumer Sentiment index rose to 59.1 from 56.8, beating the consensus expectations for 57, according to a note from Jefferies on Friday. The index hit a record low of 50 in June. The 1-year-ahead inflation expectations index fell to 4.6%, the lowest level since June 2021, from 4.9% in November, the Jefferies note said. The cycle-high was 5.4% in March and April. Long-term expectations over a period of five years were steady at 3%, holding the uptick from 2.9% in October.
"The increase to 3.3% in June (before the revision) was what sparked the Fed to embark on a series of 75 basis points rate hikes," Jefferies economists Thomas Simons and Aneta Markowska said. "The current level of long-term inflation expectations is probably still pretty uncomfortable for the Fed, but it isn't high enough to prevent them from slowing down the pace of rate hikes at the upcoming meeting next week."
West Texas Intermediate crude oil futures fell 0.6% to $71.05.
In company news, DocuSign (DOCU) moderately raised its sales forecast for fiscal 2023 after reporting a third-quarter beat as a restructuring program announced in September helped underpin its operating margin. Shares surged 16% intraday, the top gainer on the Nasdaq.
Netflix (NFLX) shares jumped 5.4% intraday, the most on the S&P 500, after Wells Fargo upgraded the company's stock to overweight from an equalweight rating and raised its price target to $400 from $300.
Gold was up 0.6% to $1,812.65 and silver jumped 2.1% to $23.74.
