U.S. stocks rebound, bonds edge higher after data

U.S. stocks extended a rebound ahead of Friday data expected to show the Federal Reserve’s preferred inflation metric is close to its target.

The S&P 500, up 1.0% Thursday, is on the precipice of an eight-week winning streak – its longest in more than five years – if it can hold onto gains.

The Nasdaq 100 index faces a similar challenge, the tech-heavy benchmark rose 1.2% after Wednesday’s bout of selling had knocked it off record highs.

The VIX briefly rose above 14 for the first time since November, Wall Street’s gauge of stock volatility has been trading near multi-year lows.

The Fed’s preferred inflation metric, the so-called core personal-consumption expenditures price index, is broadly expected to hit the central bank’s 2% target when the report comes out ahead of the U.S. stock market open Friday.

Though the devil will be in the details on whether or not the data will back up the Fed Chair’s recent pivot, according to Bloomberg Economics.

A reassuring reading could alleviate some of the friction in the stock market.

Some market watchers blamed Wednesday’s swoon on so-called zero-day, or ODTE, options, noting that hefty “put” volumes likely added to the selloff as some option sellers balanced their books.

But the broader picture of slowing inflation and rate-cut bets mean such speed bumps will be short-lived, many argue.

Citigroup Inc. strategists advised buying into pullbacks, adding investors should “expect volatility ahead, but with an eventual Fed pivot as a north star.”

The global bond rally took a breather Thursady as the yield on the U.S. two-year hovered around 4.35%.

The rate on the U.S. 10-year – tied to everything from mortgage to lending rates – edged up to 3.89%, its still down roughly 50 basis points this month.

“The theme of consolidation remains the most relevant impulse for a market that is quickly approaching the end of the year,” Ian Lyngen of BMO Capital Markets wrote.

“Next week’s price action will be largely irrelevant with the presumption of limited liquidity and even more limited conviction.”

Gross domestic product was revised lower to a 4.9% annualized rise in the third quarter, trailing economists’ projections, the government’s third estimate of the figures Thursday showed.

Initial applications for U.S. unemployment insurance rose last week by less than forecast, remaining near historic lows.

Numbers “were still in line with the narrative that a cooling economy will keep the Fed on track to cut rates in the not-too-distant future,” Chris Larkin, managing director of trading and investing at E*Trade from Morgan Stanley, said.

“Right or wrong, that sentiment has played a big role in the market’s recent surge, even though the Fed has been doing its best to temper expectations.”

Following the data, swaps traders are betting on at least six quarter point interest rate cuts from the U.S. central bank by the end of next year, well ahead of the three policymakers signaled last week.

Nike Inc.’s earnings, due after market close should provide insights on the state of U.S. consumers. Friday brings UK GDP data, U.S. consumer sentiment and in addition to personal spending data.

In commodities, oil prices retreated after three days of gains, as surging U.S. production tempered the threat of Houthi attacks on ships in one of the world’s most important waterways.

The U.S. dollar resumed a slide, falling against all of its Group-of-10 peers Thursday.