CAT Caterpillar Inc

By Ellie Ismailidou and Sara Sjolin, MarketWatch

San Francisco Fed's Williams says he backs rate increase 'sooner rather than later'

U.S. stocks on Wednesday took a turn lower after some choppy trade, as investors braced for a product announcement by Apple Inc. ahead of a key report on U.S. economic conditions, which could help gauge the Federal Reserve's next steps on U.S. interest rates.

The S&P 500 was down 4 points, or 0.2%, at 2,182, buoyed by gains in tech shares -- the only sector in positive territory, up 0.2%. A 0.8% drop in consumer-staples stock weighed on the large-cap gauge.

The Dow Jones Industrial Average lost 56 points, or 0.3%, to 18,481, pressured by a 1% drop in Home Depot Inc.(HD) but boosted by a 1.4% gain in Caterpillar Inc.(CAT).

And the tech-heavy Nasdaq Composite Index erased early gains to turn negative, down 3 points, or 0.1%, at 5,277.

Wednesday's muted action came after U.S. stocks logged small gains on Tuesday (http://www.marketwatch.com/story/us-stocks-set-to-open-higher-as-traders-return-from-holiday-2016-09-06) when a disappointing services-sector report fueled expectations the Fed won't raise interest rates at its Sept. 20-21 meeting.

San Francisco Fed President John Williams late Tuesday said he still backs a rate increase "sooner rather than later," (http://www.marketwatch.com/story/feds-williams-still-backs-rate-hike-sooner-rather-than-later-2016-09-06) repeating comments he made before the release of the disappointing August jobs report. (http://www.marketwatch.com/story/economy-adds-151000-new-jobs-in-august-2016-09-02)

On a more positive note, the Labor Department said on Wednesday that job openings soared to an all-time high (http://www.marketwatch.com/story/job-openings-soar-to-all-time-high-of-59-million-in-july-2016-09-07)of 5.9 million in July, a sign that the labor market is more fluid.

Still, many investors were reluctant to believe that an interest-rate hike was imminent. "I would discount what the Fed governors are saying," said James Abate, chief investment officer at Centre Asset Management LLC.

Recent data, including weak reports on gross-domestic-product growth, industrial productions and capital spending, suggest that "the Fed is in the box," as policy makers are hinting at a potential rate hike, which the economic cycle is "in a period of deceleration.

The Fed's report on economic conditions, the so-called Beige Book, comes out at 2 p.m., Société Générale analysts said.

"Given the declines in both the ISM factory and services surveys in August, comments from regional Fed banks about the degree of cooling in those sectors could aid in determining whether the weak ISM prints in August truly reflect weaker conditions," they said in a note.

But regardless of what the Fed does, there is ample bearishness among investors based on the usual suspects of ultraloose monetary policy by dovish central banks across the world, investor complacency and suppressed volatility, said Kent Engelke, chief economic strategist at Capitol Securities Management.

In this context, a 25-basis-point interest rate hike would not be a fundamental reason for a market collapse -- but rather an emotional trigger for investors, Engelke added.

Movers and shakers: On the corporate front, all eyes were on Apple(AAPL) as it was expected to unveil its iPhone 7 at an event in San Francisco at 10 a.m. Pacific Time, or 1 p.m. Eastern.

Apple shares were down 0.1% in late morning trade. An analysis from UBS found that the tech major's stock tends to trade lower leading into its flagship September event, then rebounds in the run-up to the actual release (http://www.marketwatch.com/story/how-apples-stock-tends-to-trade-around-its-september-event-2016-09-06) of the new hardware a few weeks later.

Read:How to get Apple's new iPhone 7 free (http://www.marketwatch.com/story/how-to-get-apples-new-iphone-7-for-free-2016-09-03)

Chipotle Mexican Grill Inc.(CMG) jumped 5.8% after Bill Ackman's Pershing Square Capital Management LP late Tuesday disclosed it has bought a 9.9% stake in the fast food chain (http://www.marketwatch.com/story/bill-ackmans-pershing-square-takes-big-stake-in-chipotle-2016-09-06).

Advanced Micro Devices Inc.(AMD) lost 7.4%, after late Tuesday announcing plans to raise more than $1 billion (http://www.marketwatch.com/story/amd-plans-stock-offering-while-trading-near-5-year-high-shares-drop-2016-09-06) through a stock and debt offering.

Oil-related companies pulled back from a strong premarket advance as oil prices released early gains and turned negative (http://www.marketwatch.com/story/oil-rallies-as-traders-brace-for-supply-data-2016-09-07). ConocoPhillips(COP) rose 0.2% and SeaDrill Ltd.(SDRL.OS) inched 0.2% lower.

Other markets: Stocks in Asia closed mixed (http://www.marketwatch.com/story/asian-stocks-make-gains-though-soaring-yen-weighs-on-nikkei-2016-09-07), but Japan's Nikkei was shoved 0.4% lower, pressured by a stronger yen.

European markets (http://www.marketwatch.com/story/european-stocks-seesaw-after-german-industrial-data-disappoint-2016-09-07) were mostly higher, but struggled for firm direction.

Gold was slightly lower, while the dollar traded mixed against other major currencies (http://www.marketwatch.com/story/dollar-slides-against-yen-on-boj-easing-skepticism-2016-09-07) (http://www.marketwatch.com/story/dollar-slides-against-yen-on-boj-easing-skepticism-2016-09-07) but fell markedly against the yen on growing skepticism that the Bank of Japan may not be able to take aggressive easing measures at its policy meeting later this month.

(END) Dow Jones Newswires

September 07, 2016 11:36 ET (15:36 GMT)

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