Treasuries climbed after the latest economic figures underscored a gradual slowdown, reinforcing speculation the Federal Reserve will end its most-aggressive hiking campaign in decades.

Ten-year yields fell eight basis points to 4.45 per cent. Following a torrid rally that sent American stocks near “overbought” levels, the S&P 500 was little changed. Walmart Inc. slumped amid a cautious tone on the outlook for consumers, while Macy’s Inc. climbed on a profit beat. Cisco Systems Inc. sank after a bearish forecast. Oil tumbled below US$73 a barrel — the lowest since July.

Wall Street kept a close eye on another batch of economic data on Thursday, with continuing applications for U.S. unemployment benefits rising to the highest in almost two years. Factory production fell by more than expected, largely reflecting a strike-related pullback in activity at automakers and parts suppliers. Meantime, homebuilder sentiment hit the lowest in 2023.

“The lags in monetary policy are catching up with the economy now — from input costs to industrial production to labor,” said Jamie Cox at Harris Financial Group. “Now, the fight shifts from inflation to preserving economic growth and averting recession. Rate cuts are closer than people think.”

Fed Governor Lisa Cook noted she is attuned to the risk of an unnecessarily sharp economic slump, pointing to strain in some sectors from tighter financial conditions. Fed Bank of Cleveland President Loretta Mester told CNBC she hasn’t decided whether another hike is still needed, adding officials have time to see how the economy is evolving.

While it’s still too early for the Fed to declare victory over inflation — and rate cuts are still far off — figures like the recent ones will tamp down lingering concerns about an additional hike, according to Chris Larkin at E*Trade from Morgan Stanley. 

“The question now is whether this type of ‘Fed-friendly data’ will continue to provide bullish momentum for the stock market,” he noted.

Equities wavered after a rally from “oversold” levels that was driven by bets the central bank is done with rate hikes — and turbocharged by short covering. The S&P 500 is still on pace for its best month in over a year.

“The risk/reward is not as favorable after the move up. Still, the weight of the evidence suggests modest upside in this rally remains, albeit after an expected near-term pause,” said Keith Lerner at Truist Advisory Services.

The market is still subject to some volatility going forward and is certainly data-dependent, said Chris Gaffney, president of world markets at EverBank.

“There’s a back-and-forth with the markets and the Fed, and that’s going to lead to more volatility as we go forward — through the end of the year and actually into next year,” he added.

The recent stock market rally was a result of investors realizing the Fed is likely finished with its rate-hiking campaign, according to James Demmert, chief investment officer at Main Street Research.

“Further short covering, along with institutional and retail investors being underweight stocks, will likely continue to drive the market higher into year-end,” he said.

Money-market fund assets rose to an all-time high for the second-straight week as interest rates north of 5 per cent and volatility in fixed-income markets drove investors to havens. 

A murky economic outlook and alluring returns on cash kept investors out of stocks this year despite their defiant run. Goldman Sachs Group Inc. thinks the wariness will persist into 2024.

“We expect positive returns to equities, but a 5 per cent return risk-free in cash remains a competitive alternative,” David Kostin, the bank’s chief U.S. equity strategist, said. “In the current interest rate environment, the 3-month Treasury bill yields 5.5 per cent, similar to the earnings yield on the S&P 500 index.”

Global stocks will outperform bonds in 2024 as they navigate a “soft-ish” economic landing, Barclays Plc strategists said, becoming the latest to strike an optimistic tone on the asset class.

The team led by Ajay Rajadhyaksha turned overweight on global equities over core fixed income and said they expect “mid- to high single-digit returns” in both the U.S. and Europe next year. That forecast stands even as bond yields stay elevated and earnings expectations for the S&P 500 “seem too optimistic to us,” they wrote.

Elsewhere, oil plummeted as trend-following trades accelerated losses that were kicked off by swelling inventories and the failure of key technical support levels.

Corporate Highlights:

• Apple Inc. has fallen further behind in its multibillion-dollar effort to make a modem chip for the iPhone, stymied by the complexity of replacing an intricate Qualcomm Inc. component.
• Intel Corp. was upgraded to buy at Mizuho Securities, which said the chipmaker was lining up significant new server products in the next six months.
• Walt Disney Co., battling activist investors and struggling to adapt to changes in consumer viewing habits, plans to address employees in a companywide town hall after Thanksgiving.
• Bath & Body Works Inc. anticipates a continuation of softer topline trends in the fourth quarter.
• General Motors Co. employees voted to ratify the labor agreement reached with the United Auto Workers, ending a costly and drawn-out process that included a six-week strike.
• Alibaba Group Holding Ltd. has called off a spinoff of its giant cloud business after the U.S. tightened curbs on advanced chips for China.
• SpaceX is delaying the long-awaited second launch of its massive Starship rocket by one day to Saturday, Chief Executive Officer Elon Musk said.

Key events this week:

• U.S. housing starts, Friday
• U.S. Congress faces a midnight deadline to pass a federal spending measure, Friday
• ECB President Christine Lagarde speaks, Friday
• Chicago Fed President Austan Goolsbee, Boston Fed President Susan Collins and San Francisco Fed President Mary Daly speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.1 per cent
• The Dow Jones Industrial Average fell 0.1 per cent
• The MSCI World index fell 0.1 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0847
• The British pound was little changed at $1.2409
• The Japanese yen rose 0.4 per cent to 150.74 per dollar

Cryptocurrencies

• Bitcoin fell 4.5 per cent to $35,943.5
• Ether fell 4.5 per cent to $1,956.01

Bonds

• The yield on 10-year Treasuries declined eight basis points to 4.45 per cent
• Germany’s 10-year yield declined five basis points to 2.59 per cent
• Britain’s 10-year yield declined eight basis points to 4.15 per cent

Commodities

• West Texas Intermediate crude fell 4.9 per cent to $72.90 a barrel
• Spot gold rose 1.1 per cent to $1,981.17 an ounce