By Mark DeCambre and Wallace Witkowski, MarketWatch
Yellen, Fischer comments strengthen rate-hike likelihood
U.S. stocks pivoted lower Friday after comments from Fed Vice
Chairman Stanley Fischer doubled down on a speech by Federal
Reserve Chairwoman Janet Yellen that asserted the case for a rate
increase is gathering steam.
Yellen didn't provide any specific timetable for a rate increase
during a speech at the Kansas City Fed's annual retreat in Jackson
Hole, Wyo
(http://www.marketwatch.com/story/feds-yellen-says-case-for-another-interest-rate-hike-has-strenghtened-2016-08-26).,
and Wall Street, anticipating a decidedly more hawkish posture from
the Fed boss, sent shares higher after a brief, initial knee-jerk
move lower.
"In light of the continued solid performance of the labor market
and our outlook for economic activity and inflation, I believe the
case for an increase in the federal-funds rate has strengthened in
recent months," Yellen said in a speech prepared for delivery to
the Jackson Hole summit.
Market participants said the Fed chief's statement offered no
new evidence that a rate increase is imminent, which initially
bolstered market sentiment, lifting stocks.
Fischer, however, in an interview with CNBC
(http://www.cnbc.com/2016/08/26/feds-fischer-economy-has-strengthened-job-report-will-weigh-in-on-hike-decision.html)following
Yellen's remarks, said the next jobs report will figure into the
decision to raise rates, suggesting a September rate increase was
very much in play.
Stocks have enjoyed a protracted period of ultraloose monetary
policy. The Fed has been on hold since delivering its first rate
rise in nearly a decade in December.
"I think Stanley Fischer is trying to keep the market honest and
his comments regarding September being on the table and two rate
hikes still a possibility are a great example of what is
'technically true' versus what is a likely outcome," said Chris
Zaccarelli, chief investment officer at Cornerstone Financial
Partners.
"If I'm Vice Chair Fischer, I'd rather predict two rate hikes
and have the market price in one hike, rather than predict one rate
hike and have the market predict zero," Zaccarelli said. "In this
way, the market will be prepared for a rate hike in December."
The Dow Jones Industrial Average fell 75 points, or 0.4%, to
18,374, backing off an earlier 124-point gain. Shares of Verizon
Communications Inc.(VZ) and McDonald's Corp. (MCD) led blue-chip
decliners.
The S&P 500 index fell 7 points, or 0.3%, at 2,166, after
trading up as many as 16 points earlier. All 10 of the large-cap's
sectors were firmly in the red, after all 10 had been positive
earlier in the session. Telecom and utilities, often seen as bond
proxies, led the charge lower.
The Nasdaq Composite Index shed 12 points, or 0.2%, to 5,200,
after being up about 41 points earlier in the session. The
tech-heavy index is on track for snapping its eight-week winning
streak with a 0.7% decline.
Quincy Krosby, market strategist at Prudential Financial, said
that Yellen acknowledged "that growth has strengthened but "was
careful not to commit to a specific timeline." She said that she
wouldn't rule out a rate increase in 2016, however.
Wall Street sees the chance of rate increase at the Fed's Sept.
20-21 meeting is 24%, up from 21% on Thursday, according to the CME
Group's FedWatch too
(http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)l.
The market sees the likelihood of a rate increase in December at
58% from 52% the day prior.
"I see nothing in this speech that would motivate me to believe
the Fed moves in September," said Jamie Cox, managing partner of
Harris Financial Group. "Chair Yellen maintained her position of
gradual increases of the fed-funds rate," he said.
Ahead of the speech, a second estimate of second-quarter gross
domestic product did little to boost stocks, underscoring that the
U.S. economy is still muddling along, growing at a lackluster 1.1%
pace--slower than preliminary reading of 1.2%
(http://www.marketwatch.com/story/second-quarter-gdp-rises-just-12-well-below-forecast-2016-07-29)
as corporate profits fell.
Meanwhile, Cleveland Fed President Loretta Mester on Friday on
CNBC echoed the recent hawkish sentiments of other Fed members,
saying "it makes sense" to start moving interest rates higher.
Read more:Yellen to say 'ready' for another rate increase in
Jackson Hole
(http://www.marketwatch.com/story/yellen-to-say-ready-for-another-rate-hike-in-jackson-hole-2016-08-19)
And see:Fed might raise interest rates despite market objections
(http://www.marketwatch.com/story/fed-going-out-to-jackson-hole-to-get-divorce-from-markets-2016-08-23)
On Thursday, the S&P 500 index closed 0.1% lower, while the
Dow shed 0.2%, and the Nasdaq Composite Index was down 5.49 points,
or 0.1%, to 5,212.20, as investors seemed reluctant to make big
bets
(http://www.marketwatch.com/story/wall-street-set-for-losses-as-yellen-speech-draws-closer-2016-08-25)
on the eve of the Fed chairwoman's speech.
Individual movers: Shares in Herbalife Ltd.(HLF) tumbled 4%
following news that billionaire investor Carl Icahn has recently
discussed selling his stake
(http://www.marketwatch.com/story/carl-icahn-considered-selling-herbalife-stake-to-arch-nemesis-bill-ackman-2016-08-26)
in the nutritional-products company to a group including
Herbalife's arch-nemesis Bill Ackman.
Anheuser-Busch InBev NV(ABI.BT)(ABI.BT) warned Friday its beer
megamerger with SABMiller PLC(SAB.JO) could lead to thousands of
job losses
(http://www.marketwatch.com/story/ab-inbev-warns-3-to-be-laid-off-in-merger-2016-08-26)
in the coming years.
Software company
(http://www.marketwatch.com/story/splunk-beats-expectations-and-raises-forecast-but-stock-still-slumps-2016-08-25)Splunk
Inc.(SPLK), beauty products seller
(http://www.marketwatch.com/story/ulta-shares-weaken-as-outlook-offsets-earnings-beat-2016-08-25)Ulta
Salon Cosmetics & Fragrance Inc.(ULTA) and videogame retailer
(http://www.marketwatch.com/story/gamestop-shares-slide-after-revenue-falls-short-of-street-view-2016-08-25)GameStop
Corp.(GME) all traded lower after each company's stock suffered an
earnings-driven drop late Thursday.
Autodesk Inc.(ADSK) shares rallied 8% after the company topped
Street targets
(http://www.marketwatch.com/story/autodesk-raises-annual-outlook-after-results-2016-08-25)
and raised its outlook.
Other markets:Oil futures
(http://www.marketwatch.com/story/oil-prices-retreat-ahead-of-yellens-speech-2016-08-26)
ticked higher in Friday trade, European stocks also tilted up after
oil turned positive after trading lower for much of the morning,
while Asia closed mixed. Gold futures
(http://www.marketwatch.com/story/gold-rises-as-yellen-looms-but-on-track-for-weekly-loss-2016-08-26)
settled up 0.1% at $1,325.90 an ounce, while the U.S. Dollar Index
rose 0.6% to 95.37.
Other economic reports: Meanwhile, the trade gap narrowed
(http://www.marketwatch.com/story/us-trade-gap-narrows-in-july-advance-report-shows-2016-08-26)to
a seasonally adjusted $59.3 billion in July from $64.5 billion in
June, the Commerce Department said Friday.
The University of Michigan's final August reading of consumer
sentiment
(http://www.marketwatch.com/story/consumer-sentiment-dips-as-americans-divide-on-election-impact-on-economy-2016-08-26)slipped
to 89.8 from 90.0 in July. The index is 2.3% lower than a year ago.
Economists surveyed by MarketWatch had forecast a reading of
91.0.
Check out:
--Victor Reklaitis in London contributed to this report.
(END) Dow Jones Newswires
August 26, 2016 14:23 ET (18:23 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.