Stock NYSE US stock market
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 13, 2022. Image Credit: Reuters

New York: Wall Street’s main indexes were set to open slightly lower in choppy trading on Friday after data showed inflation cooled further in November, but not enough to discourage the Federal Reserve from driving interest rates to higher levels next year.

Futures swung between gains and losses in thin trading before Christmas after a Commerce Department report showed US consumer spending barely rose in November, while inflation cooled further.

The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose 0.1 per cent last month after climbing 0.4 per cent in October. In the 12 months through November, the PCE price index increased 5.5 per cent after advancing 6.1 per cent in October.

“The good news is the PCE coming down to a 5.5 number. But again, still above what the Fed is expecting and part of the reason why we’ve seen a pop in rates indicating that the Fed is not yet done with their rate-increasing cycle,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

“The equity markets have it wrong that they think the Fed is going to stop and eventually cut interest rates later in 2023.

And right now I don’t see that happening anytime soon.” The previous session saw a selloff on Wall Street sparked by data that indicated a resilient American economy, that could push the central bank to keep hiking rates for longer.

Market reaction

Market participants stuck to their expectations of a 25-basis point rate hike by the Fed in February, but see the terminal rate hitting 4.9 per cent in May 2023 versus 4.8 per cent before the data on Friday.

Investors have been jittery since last week as the Fed remains stubbornly committed to achieving the 2 per cent inflation goal and projected it would continue raising rates to above 5 per cent in 2023, a level not seen since 2007.

The benchmark S&P 500, with a near 20 per cent fall this year, is on track for its biggest yearly decline since the 2008 financial crisis. The tech-heavy Nasdaq has shed about 33 per cent this year and the Dow 9 per cent.

“It looks like a disappointing December will cap off a disappointing year for equities, unless we get a last-minute post-Christmas Santa surge which seems unlikely at this stage,” said Victoria Scholar, head of investment at Interactive Investor.

Other data sets that investors will closely monitor on Friday include new home sales and University of Michigan’s consumer sentiment for assessing the state of the US economy, due after the opening bell.

At 9:06 am ET, Dow e-minis were down 25 points, or 0.08 per cent, S&P 500 e-minis were down 7.5 points, or 0.19 per cent, and Nasdaq 100 e-minis were down 26.75 points, or 0.24 per cent.

Tesla Inc rose 1.5 per cent in premarket trading after CEO Elon Musk said he will not sell any more shares of the electric-vehicle maker for another two years.