Dow refreshes highest close in nearly four months after Fed official’s remarks, with inflation data ahead

What drove markets

After a small move lower Monday, stock are struggling to tack more gains onto a strong November showing on Tuesday.

Federal Reserve governor Christopher Waller said Tuesday that signs of a cooling economy could bring the target inflation rate back to 2%. For now, it’s not clear if more rate hikes are warranted, he noted.

Waller is regarded as one of the more “hawkish” members of the central bank’s committee setting interest rates, historically inclining toward higher interest rates. So Wall Street is paying attention to his softening tone.

“Waller hasn’t leaned this far dovish yet,” said Art Hogan, the chief market strategist at B. Riley Wealth. “That being new becomes a market mover, whereas a lot of Fed speak tends to fall in the abyss.”

Treasury yields turned lower after Waller’s comments.

Of course, there are differences of opinion on where rates go next. Also Tuesday, another hawk at the central bank, Fed governor Michelle Bowman, said she expects “we will need to increase the federal-funds rate further” in the fight to tamp down inflation.

Meanwhile, Fed Chair Jerome Powell is scheduled to speak on Friday.

The S&P 500 has jumped 8.5% so far in November, taking its advance for 2023 to 18.5%, after evidence of cooling inflation pushed benchmark bond yields to three-month lows on hopes the Federal Reserve was finished raising borrowing costs for this cycle.

The yield on the 10-year Treasury 
BX:TMUBMUSD10Y
fell 5.3 basis points to 4.335% Tuesday, the lowest since Sept. 18. The yield on the 2-year Treasury on Tuesday dropped 12 basis points to 4.734%, the lowest level since July 17, according to Dow Jones market data.

Investors will have fresh numbers to work off once the Fed-favored inflation report for October is released on Thursday.

Traders are currently expecting a 96% chance the Fed will keep its benchmark interest rate at its current level, according to the CME FedWatch tool. The next interest-rate decision is slated for announcement on Dec. 14. For now, traders are betting a nearly 33% chance of a 25-basis-point rate cut at the March 2024 meeting.

Until then, there’s more economic data to consider this week, including the S&P CoreLogic Case-Shiller home-price index on Tuesday. It showed, in aggregate, home prices in the nation’s 20 major markets rising for the eighth straight month and hitting a record high. Prices in the major markets increased 3.9% year over year in September, the index showed.

The consumer-confidence index climbed to 102 from a revised 99.1 in November, exceeding forecasts. Even with the rebound from a 15-month low, people said they are still worried about a recession. Still, the numbers were another encouraging sign for traders, Hogan told MarketWatch.

The consumer-confidence figures come on the heels of strong online-holiday-shopping sales numbers for Black Friday and Cyber Monday from deal-seeking consumers.

Companies presenting results on Tuesday include CrowdStrike
CRWD,
+0.02%,
Workday
WDAY,
-2.31%
and Hewlett Packard Enterprises
HPE,
-1.51%,
all after the closing bell rings.

Companies in focus

• Boeing Co. shares
  BA,
  -0.50%
  were 1.4% higher Tuesday after an upgrade to outperform from RBC Capital Markets. Analysts said 2024 looked “favorable” for the aerospace company, including improving execution on the Max and 787. Analysts lifted the price target to $275 from $200.  

• Avidity Biosciences Inc. shares
  RNA,
  +0.25%
  were 15% higher Tuesday after the firm said it is broadening its cardiovascular collaboration with Bristol Myers Squibb Co.
  BMY,
  +0.26%.
  Avidity is developing new types of RNA therapeutics and Bristol Myers Squibb is funding clinical development, as well as the regulatory and commercialization costs tied to the collaboration. 

Jamie Chisholm contributed.