U.S. stocks dipped while bond yields climbed after a reading of long-term inflation expectations rose unexpectedly and a fresh warning on the debt-ceiling. 

The S&P 500 erased early gains to slide 0.3 per cent while the Nasdaq 100 fell 0.5 per cent after the results of a preliminary University of Michigan sentiment survey showed consumers expect prices to rise at a 3.2 per cent annual rate over the next five to ten years, the highest since 2011. First Solar Inc. outperformed, leading a rally in solar energy stocks after new guidance on a clean energy tax credit increase. 

A renewed call to raise the debt limit from Treasury Secretary Janet Yellen added to investor consternation. “If Congress fails to do that, it really impairs our credit rating,” she said. “We have to default on some obligation, whether it's Treasuries or payments to Social Security recipients.”

Yields on the policy-sensitive two-year approached four per cent while the 10-year rose to 3.44 per cent Friday. There had been cautious optimism that a deal was making headway after a meeting between President Joe Biden and House Speaker Kevin McCarthy was postponed.

“They will find a deal — we need to remember negotiations have only just started,” said Marie Jacot-Cardoen, chief executive officer of Edmond de Rothschild Asset Management France, on Bloomberg Television. “It is likely political antagonism will increase before deal is reached, but we believe a compromise will be found.”

Globally, stock markets have seesawed this week on mixed U.S. economic data and ongoing worries about the debt ceiling. Tech stocks have continued to outperform, with the Nasdaq 100 Index still on pace for its third straight weekly gain, there's plenty of skepticism about the industry.

Bank of America Corp. strategists led by Michael Hartnett wrote in a note on Friday that a recession will “crack credit and tech” just as it did in 2008.

Stocks have been trading in a tight range as investors await a signal the Federal Reserve's historic interest-rate hiking cycle is at an end. U.S. data Thursday showed initial jobless claims reached the highest since October 2021 while producer prices rose less than economists expected, suggesting Federal Reserve policy tightening may finally be having an effect. 

“This market has been flat because we're in this world where we know the risk of recession is high, but we're not seeing the whites of the eyes of it in hard data, and that's why we continue to have this sideways chop,” Cameron Dawson, chief investment officer at Newedge Wealth, said Friday on Bloomberg Television.

Wall Street has been eying 4,200 as a key resistance level for the S&P 500. The risk is that the market moves higher, according to Dawson. “The technicals, the sentiment positioning could get us above that and really make it a very big pain trade,” he said.

The dollar rose as it headed for the biggest weekly gain since February. Bitcoin dropped below US$27,000.

In emerging markets, attention is turning to Turkey's elections Sunday. Banking stocks have rallied in Istanbul, heading for their best weekly performance since 2002, when incumbent President Recep Tayyip Erdogan's Ak Party rose to power. Some investors expect the opposition to restore more orthodox monetary policy should it gain power. 

Key events this week:

• Fed Governor Philip Jefferson and St. Louis Fed President James Bullard participate in panel discussion on monetary policy at Stanford University, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2 per cent as of 12 p.m. New York time
• The Nasdaq 100 fell 0.3 per cent
• The Dow Jones Industrial Average was little changed
• The Stoxx Europe 600 rose 0.4 per cent
• The MSCI World index fell 0.3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.5 per cent
• The euro fell 0.6 per cent to US$1.0855
• The British pound fell 0.4 per cent to US$1.2462
• The Japanese yen fell 0.8 per cent to 135.65 per dollar

Cryptocurrencies

• Bitcoin fell 2.5 per cent to US$26,325.84
• Ether fell 1.7 per cent to US$1,765.8

Bonds

• The yield on 10-year Treasuries advanced six basis points to 3.45 per cent
• Germany's 10-year yield advanced five basis points to 2.28 per cent
• Britain's 10-year yield advanced seven basis points to 3.78 per cent

Commodities

• West Texas Intermediate crude fell 0.7 per cent to US$70.35 a barrel
• Gold futures fell 0.2 per cent to US$2,015.80 an ounce