U.S. equities climbed higher on Friday amid light volumes to quietly end a choppy week. The major averages remain directionless ahead of next week’s critical Sept. 17 policy announcement and press conference from the Federal Reserve — which could very well feature the first interest rate hike since 2006.
The futures market puts the odds of a rate hike action at less than 30%, setting up a potential move on rates in October or December.
In the end, the Dow Jones Industrial Average gained 0.6%, the S&P 500 gained 0.5%, the Nasdaq Composite gained 0.5%, and the Russell 2000 gained 0.4%.
Defensive utility stocks led the way with a 0.8% gain while energy stocks were the laggards, losing 0.7%. Clothing brand licenser Cherokee (CHKE) lost 31% after reporting weaker-than-expected Q2 earnings as well as the bombshell announcement that Target (TGT) — responsible for more than 40% of Cherokee’s revenues — will not renew its deal with the company.
Retailer Zumiez (ZUMZ) lost 28% after missing on August comp-store sales (down 10.7% vs. an expected 3.8% decline) — the fifth straight month of comp declines.
Crude oil lost 2.5% to close at $44.73 per barrel after Goldman Sachs became the latest sell-side firm to trim its 12-month oil outlook, looking for $45 per barrel vs. $60 previously. The bank noted there was a downside possibility of $20 per barrel due to operational stress, a number that stressed out many traders.
For now, the $45-per-barrel level continues to act as a tractor beam after the dramatic dump-and-pump price action of August.
On the economic front, the September University of Michigan confidence index fell to 85.7 from 91.9 in August after weeks of global financial turmoil. The August producer price inflation report was flattish due to the weight of import prices, compared to 1.8% growth in August 2014.
If you get the sense that nothing much is happening right now, well, you’d be correct.
Everyone is braced for the possibility of a 0.25% rise in the Federal Funds rate that would end the long experiment with near-0% interest rates that has been in place since 2008.
JPMorgan’s Michael Feroli calls the decision “essentially a coin flip” as the economic data “present a clear case for the Fed to begin the normalization process,” while “recent financial market turbulence complicates the decision.”
His preference, in this environment, is for the Fed to hike rates while communicating that it’s the pace of subsequent hikes that matter (the “pace vs. timing” message that Fed policymakers have tried to reinforce in recent months).
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
