For the week, the Dow is headed for a 3.3% gain, the S&P 500 is on track to gain 4.9% and the Nasdaq is poised to advance 6.8%, according to FactSet data, at last check.

What’s driving markets

Stocks were mixed around midday Friday, amid thinned trading volume as the U.S. government bond market was closed for the Veterans Day holiday.

“Investors are trying to sniff out peak Fed hawkishness,” said Karim El Nokali, an investment strategist at Schroders, in a phone interview Friday. “It’s been an extremely quick rate hiking cycle and maybe we’re close to the end, which certainly the market likes.”

While the Federal Reserve is expected to continue hiking interest rates to combat the high cost of living in the U.S., investors are weighing whether the pace of those rate hikes could begin to moderate after inflation in October showed signs of easing, according to El Nokali.

After a string of jumbo, 75 basis point rate hikes by the Fed, it appears “we’re looking at 50 basis points in December, and hopefully, maybe a series of 25 basis point hikes next year as they kind of pause and let the rate hikes work through the market,” he said. “I do think we’ve seen peak inflation.”

Market analysts including Tom Lee, director of research at Fundstrat, said stocks could continue to rally if October’s inflation report proves to be a turning point in the Fed’s battle to combat inflation after price pressures intensified to their strongest level in more than four decades over the summer.

Data released on Thursday showed the headline consumer-price index rose by a slower-than-forecast 7.7% year-over-year in October, while core inflation also came in at a slower-than-expected 6.3%.

The report triggered a spectacular bounce across asset classes, with the S&P 500 index jumping 5.5% on Thursday, its best daily percentage gain since April 2020, and 2-year Treasury yields
TMUBMUSD02Y,
4.323%
plunging 33 basis points, the biggest daily decline since September 2008.

Read:‘Real big sigh of relief’: Stock, bond ETFs jump on inflation report while investors eye equal-weighted strategies

Fed funds futures expect the Fed’s benchmark interest rate will peak in the first quarter of next year, moving up the timeline for a potential “pause.”

“The cool inflation print should mean the beginning of the end for inflation fears, and the Fed will feel much more comfortable ramping down. Indeed this is the kind of number that lifts all ships, as investors were not even close to being positioned for this type of inflation retreat,” said Stephen Innes, managing partner at SPI Asset Management.

Stocks have been roiled in 2022 as the Fed hiked its policy interest rate by 3.75 percentage points in the space of less than nine months in service of its inflation fight. The S&P 500 is down 17% so far this year.

Schroders strategist El Nokali said he expects the S&P 500 will probably continue to be “choppy” in a range of 3,200 to 4,100, as the geopolitical outlook remains “murky” concerning the Russia-Ukraine war and elements of inflation remain “sticky” even as it declines.

“I think the question will be what kind of elevated inflation rate is the Fed willing to tolerate,” he said, as it’s “unlikely” to fall to the central bank’s 2% target “anytime soon.”

Outside the U.S., news that China was easing its COVID-19 curbs contributed to a still-optimistic tone in markets, sending crude-oil futures and copper prices higher. West Texas Intermediate crude futures CL.1 were up 2.5% at $88.62 a barrel.

Companies in focus

Walgreens Boots Alliance Inc.
WBA,
+6.13%
shares 5% rose after Deutsche Bank upgraded the stock to buy from hold.

Duolingo Inc.
DUOL,
-9.84%
shares tumbled 12% after the language class provider reported revenue for its most recent quarter that fell short of analyst forecasts.

Intel Corp.
INTC,
+1.63%
was up 0.5% after the chip maker’s stock was rated underweight in resumed coverage at JPMorgan Chase.

—Jamie Chisholm contributed to this report.