Dow closes more than 100 points higher on Friday,

U.S. stocks were mixed on Friday as stubbornly high inflation and a rebound in rates continued to weigh on investor sentiment.

The Dow Jones Industrial Average rose 129.84 points, or 0.39% to end at 33,826.69. The 30-stock index rallied from lows of the day boosted by shares of Amgen and United Health, which gained 2.69% and 2.41% respectively.

The S&P 500 shed 0.28% to end the day at 4,079.09, and the Nasdaq Composite fell 0.58% to close at 11,787.27. Energy was the biggest laggard. Devon Energy dropped 4.29%, dragging down the S&P 500.

Yields on the 10-year and 2-year U.S. Treasury bonds hit levels not seen since November, weighing on equities early in the session.

Stocks are mixed on the week. The Dow ended down 0.13% for the week, its third negative week in a row — a first since September. The S&P 500 has shed 0.28% for the week, its second negative week in a row. The Nasdaq rose 0.59% on the week.

Investors continue to worry about how the economy and equities will hold up as the Federal Reserve hikes rates to tame stubbornly high inflation. In a Friday speech, Federal Reserve Governor Michelle Bowman said there’s a long way to go before the central bank reaches its target of 2% inflation.

“We have been in a very contentious tug of war between the equity markets and the Treasury markets,” said Art Hogan, chief market strategist at B. Riley. While Treasurys are signaling that the Fed is going to hold rates higher for longer, equities are not listening and instead looking for a soft landing.

“Equity investors seem to be looking through a couple more rate hikes and looking forward to a pause,” he added.

The moves came after major averages shed more than 1% on Thursday, after the Labor Department said the producer price index — an inflation metric that tracks wholesale prices — rose 0.7% last month. That was more than economists expected.

Next week, investors will continue to watch earnings season for signs of consumer strength or weakness. Home Depot, Walmart and Etsy are scheduled to report results next week.

JPMorgan strategist says market is seeing the ‘overheat before the retreat’

A lot of the market selloff might be in, but optimism is still running too high, according to JPMorgan Asset Management global market strategist Meera Pandit told CNBC on Thursday.

“This is probably the overheat before the retreat in the economy,” Pandit said on CNBC’s “Closing Bell” on Thursday.

Pandit said the market right now is rallying off of strong economic data, overshoot on jobs, the latest consumer price index report and producer price index data, retail sales and industrial production. The strategist warned that consumer spending might weaken in the next several months, noting that stimulus checks and saving rates are waning.

“We’re either going to see slower growth and a slowdown and disinflation, or, if growth is resilient, that means that inflation might have a little bit more room to run and therefore the Fed has to hike,” Pandit said. “Either way, that’s a little bit pessimistic for risk assets.”

Pandit said the firm is seeing an environment of downward revisions in the U.S., noting that valuations of U.S. stocks are comparatively expensive to international stocks, which she said are trading at a 30% discount.

– Pia Singh

Market’s lack of reaction to inflation data may suggest a shift

“Markets have settled following an impressive start to the year, though the lack of a reaction to inflation data or “good news is bad news” mentality suggests a dramatic shift in the complexion of markets relative to last year,” said Mark Hackett, chief of investment research at Nationwide in a Friday note.

He added that Friday’s trading will determine the week’s overall direction - the S&P 500 is relatively flat on the week.

“Leadership has shifted to the risk-on asset classes, with technology and small caps leading, and the Dow underperforming the S&P 500 this year by the largest gap since 1934,” he said. “Bond investors, however, remain reactive, with the 10-year Treasury yield up 0.16% this week to 3.90%, the highest level since November.”

The shift is good news for bulls, who are looking at a narrative backed by a stronger economy than expected and a market that’s less reactive to the economy, inflation data or rising rates.

—Carmen Reinicke

UBS sees only one place for Nordstrom shares to go: Down

UBS analyst Jay Sole reiterated his sell rating on Nordstrom shares on Friday, saying the sentiment on the stock is “bearish, but has room to go lower.”

Nordstrom shares have risen nearly 36% year to date in the wake of activist investor Ryan Cohen’s entry into the stock. Sole expects the stock will give up those gains after the department store cuts its outlook for fiscal 2023 and investors begin to rethink their position.

Sole predicts the company has seen a slow start to its fiscal first quarter, which likely means its inventory levels still need to be “right sized.” This makes it unlikely that Nordstrom can improve its profitability, as margins will remain under pressure. According to Sole, consumers likely see Nordstrom’s prices as too high right now and are shopping at discounters that offer better values.

Nordstrom shares are trading down about 1% on Friday.

—Christina Cheddar Berk

Lithium ETF poised for third straight down week

The Global X Lithium & Battery ETF (LIT) is down more than 4% Friday, on pace for back-to-back losses and its worst day since Dec. 5, 2022. LIT is down 3.6% week-to-date, on pace for its third weekly loss in a row, although it remains 12% higher on the year.

Leading LIT to the downside are Albemarle Corp (ALB), Livent Corp (LTHM) and Sociedad Quimica y Minera de Chile (SQM), all down at least 7% or more. Rivian (RIVN), Freyr Battery (FREY) are each down 2% or more.

 — Scott Schnipper, Nick Wells

Fed’s Bowman says ‘a lot more progress’ needed on inflation

Federal Reserve Governor Michelle Bowman said Friday there’s still much work to be done before policymakers can feel they have inflation under control.

“I think there’s a long way to go before we reach our 2% inflation objective and I think we’ll have to continue to raise the federal funds rate until we see a lot more progress on that,” Bowman said during an appearance in Tennessee, according to Reuters

The remarks come a day after regional presidents James Bullard of St. Louis and Loretta Mester of Cleveland said they advocated for a half-point rate hike at the last meeting, rather than the quarter-point move eventually approved.

Data this week has indicated that after abating in recent months, inflation is moving up again.

“We were seeing some progress in lowering inflation at the end of last year, but some of the data that we’re seeing early this year is not tracking with consistently lowering inflation in a way that I would like to see,” Bowman said.

—Jeff Cox

Leading indicators down 0.3%, still indicating recession ahead

Forward-looking economic data is still pointing to a recession ahead, though perhaps less so, The Conference Board reported Friday.

The board’s Leading Economic Index registered a decline of 0.3%, in line with market expectations and at least on relative terms better than the 0.8% slide in December. On a six-month basis, that puts the LEI down 3.6%, compared to the 2.4% contraction over the previous period.

“While the LEI continues to signal recession in the near term, indicators related to the labor market —including employment and personal income — remain robust so far,” said Ataman Ozyildirim, the Conference Board’s senior director of economics.

“The Conference Board still expects high inflation, rising interest rates, and contracting consumer spending to tip the US economy into recession in 2023,” he added.

—Jeff Cox

Investor optimism in latest weekly AAII survey falls back below average

Bullish opinion (that stocks will rise in the next six months) in the latest weekly survey by the American Association of Individual Investors pulled back below the historical average, after rising above that bar last week for the first time in over a year.

Bulls dropped 3.4 points to 34.1% (the historical average is 37.5%), neutral opinion fell 0.4 point to 37.1% and bears grew to 28.8, up 3.8 points.

Neutral sentiment (that stocks will stay essentially unchanged over the next six months) remains above its historical average of 31.5% for a seventh straight week, AAII said. That’s the longest stretch of above-average neutral sentiment since December 2021 and January 2022, when stocks were at an all-time high.

Bearish sentiment is below its historical average of 31.0% for only the fifth week out of the past 65, and is below average in back-to-back weeks for the first time since October-November 2021, AAII said.

Similarly, the difference between bulls and bears is 5.3 points -- the first time optimism topped pessimism in two consecutive weeks since November 2021.

Sentiment surveys from the AAII and Investors Intelligence are contrarian indicators. Too much bullishness equals heightened risk that stocks will fall, and excessive pessimism equals diminished risk stocks will go lower and more likelihood prices will rebound.

— Scott Schnipper

Retail stocks may be overextended, Loop Capital says

The resilience of the U.S. consumer may not be as positive for retail stocks as their recent rally implies, Loop Capital analyst Anthony Chukumba said in a note. And that could create downside risk for the sector heading into the last leg of earnings season.

“We saw several signs in the latest macroeconomic data that increase the possibility the US economy at worst achieves a ‘soft landing’ in 2023—and perhaps avoids a recession altogether. While we continue to be incrementally more bullish on the retail sector’s fundamental prospects, with many of our covered stocks already up significantly year to date we caution investors to tread lightly ahead of the bulk of F4Q 2022 earnings reports,” the note said.

The SPDR S&P Retail ETF (XRT) up 17% year to date.

— Jesse Pound

Bullard’s comments aren’t a big shift in his view, Vital Knowledge says

Adam Crisafulli of Vital Knowledge thinks investors need to keep things in perspective after St. Louis Fed President James Bullard’s latest comments.

On Thursday, Bullard said he’d advocated for a 50 basis-point interest rate hike at the last meeting, adding that he could see a rate increase of that magnitude next month.

However, Crisafulli noted Friday morning that “Bullard’s 3pmET tape bomb hardly represented a sharp shift in his view, and the main Fed adjustment remains the length of the cycle ceiling, not its height.”

“What was most notable about Bullard was that the Fed’s biggest hawk did NOT advocate for a ceiling far above what the existing dot plot stipulates despite the string of hot/strong Jan eco data in the last couple of weeks,” Crisafulli noted.

— Fred Imbert, Michael Bloom