Stocks ended lower Monday, while the dollar arrested its decline against a basket of its global peers and Treasury yields bumped higher, as investors tried to regroup from last week's rally and into the final stretch of the trading year.
Stocks had powered to their strongest five-day gain since June last week. The move came amid the biggest pullback for the dollar in more than two years, following a softer-than-expected reading for October inflation that triggered a paring of bets on big Federal Reserve rate hikes in December and a softening of the central bank's inflation stance heading into the start of next year.
Morgan Stanley analysts, meanwhile, have forecast that headline inflation will fall below the Fed's 2% target by late next year amid weakening global demand and unstuck supply chains.
Fed officials, however, have cautioned that they'll need to see a series of data points that confirm an inflation retreat, with Fed Governor Christopher Waller telling a conference in Australia that the bank's endpoint on rate hikes is "a ways off".
Still, the CME Group's FedWatch suggests an 80.6% chance of a smaller 50 basis point rate hike in December, while 2-year Treasury notes yields are hovering at around 4.41% in New York trading, down from around 4.7% early last week.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.5% higher at 106.826, but is now some 7% south of the 22-year high it hit in late September.
The S&P 500 ended down 0.89%, while the Dow Jones Industrial Average lost 210 points, or 0.62%, to 33,537. The tech-focused Nasdaq dropped 1.12%.
Stocks for the most part appeared to shrug-off the fallout from FTX's spectacular collapse last week, even as the waves from its Friday Chapter 11 filing, and subsequent reports of unauthorized transfers from the platform on Saturday, washed over global crypto markets.
Bitcoin, the world's biggest cryptocurrency, was slightly lower Monday and changing hands at $16,271 each. Serum, the digital token created by FTX and it embattled founder Sam Bankman-Fried was marked 4.2% higher at 25 cents each representing a market cap of just $65 million.
Investors are also focused on the final throes of the third-quarter earnings season this week, with updates from 15 S&P 500 companies between now and Friday. With around 460 reporting so far, collective profits are expected to rise 4.1% from last year to $462.8 billion, thanks in large part to forecast-busting gains from the energy sector.
Looking into the final months of the year, however, earnings are likely to fall 0.1% from their 2021 levels to a share-weighted $456.7 billion, according to data from Refinitiv.
Consumer's ability to power-though inflation headwinds and increasing concerns over the fate of the broader economy will be in sharp focus this week with September quarter earnings updates expected from Walmart (WMT), Target (TGT) and Home Depot (HD) as well as official data on October retail sales.
Housing data will also be in focus with building permits and starts data on Thursday, as well as what could be a pullback in mortgage costs -- linked to the retreat in interest rates last week following softer-than-expected inflation data -- when the MBA updates on Wednesday morning.
Tech investors will also get a key glimpse into chip and gaming demand from Nvidia (NVDA), which publishes its September quarter earnings after the close of trading on Wednesday, alongside an update from Cisco Systems (CSCO) with Applied Materials (AMAT) and Palo Alto Networks (PANW) reporting on Thursday.
