On Friday, the Dow Jones Industrial Average fell 0.3% after Federal Reserve Chair Janet Yellen indicated that the case for a rate hike had “strengthened.” And following her remarks, Vice Chairman Stanley Fischer weighed in, saying they indicated the possibility of as many as two rate hikes this year.
According to fed funds futures, the implied likelihood of a rate hike in September increased to 33% on Friday from 21% on Thursday. And the probability of a rate hike in December increased to 59% from 52%.
Many rate-sensitive sectors and stocks fell as a result of Yellen’s comments, including utilities, which dropped 2.1%. Notable declines included Consolidated Edison, Inc. (NYSE:ED), off 2.2%, and PG&E Corporation (NYSE:PCG), off 2.1%.
At Friday’s close, the Dow Jones Industrial Average fell 53 points to 18,395, the S&P 500 lost 3 points at 2,169, the Nasdaq gained 7 points at 5,219, and the Russell 2000 fell 2 points to 1,238.
The NYSE Composite’s primary exchange traded 822 million shares with total volume of 3.3 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, decliners outpaced advancers by1.5-to-1, and on the Nasdaq, decliners led by 1.1-to-1. Block trades on the NYSE increased to 5,025 from 4,481 on Thursday.
For the week, the Dow Jones Industrial Average fell 0.9%, the S&P 500 lost 0.7%, the Nasdaq declined 0.4%, and the Russell 2000 gained 0.1%.
The CBOE Volatility Index (VIX) is up 24% from its Aug. 9 low of 11.02, but that was one of the lowest levels in years. So, despite the wide spread from low to high on Friday, the 0.02-point advance to a close of 13.65 is meaningless.
The chart of the Dow Jones Industrial Average is a bit concerning. While the other indices have traded in a bull channel for almost two months, the Dow has been sideways. But volume is very low, which is a positive, and MACD is oversold.
Initial support is at the 50-day moving average at 18,271 with resistance at a possible double-top at 18,668. And, as a reader correctly pointed out, the Dow Jones Transportation Average has not confirmed a bull market despite new highs by the industrials.
Yellen’s scare tactics may have an impact on interest-sensitive markets. Interest rates on most bonds have already adjusted to anticipate a rate increase. But the average investor doesn’t seem to be concerned about the possible impact on stocks.
Last week’s AAII sentiment survey showed most investors are neutral at 40.9%, with 29.4% bullish and 29.6% bearish.
The high neutral reading means more cash on the sidelines, and the bull versus bear reading tells us buyers and sellers are evenly matched. If the average investor is wrong, as they usually are, stocks may still break to the upside before the end of October.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.