U.S. equities finished lower — but within their recent trading range — amid overnight volatility in the currency market and some hawkish commentary from Federal Reserve officials.
In the end, the Dow Jones Industrial Average lost 0.5%, the S&P 500 lost 0.6%, the Nasdaq Composite lost 0.7% and the Russell 2000 lost 0.9%. Treasury bonds were weaker, the dollar was under broad selling pressure, gold gained 0.7%, and oil extended its recent strength rising 1.8%.
Energy stocks led the way with a 0.2% gain, the sole major sector group to finish in the green. Defensive telecom and utility stocks were the laggards, down 2.1% and 1.2%, respectively. Volume was light, with just 724 million shares trading on the New York Stock Exchange.
Dicks Sporting Goods Inc (NYSE:DKS) gained 7.1% on a big second-quarter earnings beat on a 2.8% rise in comp-store sales vs. the 2.2% decline expected. TJX Companies (NYSE:TJX) fell 5.8% despite a Q2 earnings beat. The culprit was weakness in comp-store sales at its HomeGoods brand and weak forward guidance.
The Fed was in focus ahead of the release of July’s meeting minutes later this week and the upcoming speech by chairman Janet Yellen at the Jackson Hole, Wyoming, symposium on Aug. 26.
San Francisco Fed President Williams said central banks need to examine the efficacy of policies given that natural interest rates are likely to stay depressed for the foreseeable future (suggesting a focus on fiscal stimulus), stressing that he isn’t suggesting an abrupt change in policy.
New York Fed President Dudley said rates could be hiked again as soon as September and that market-based odds of action by the Fed are too low and investors have grown complacent. He added that the bond market looks a bit stretched here with the 10-year Treasury yield at 1.5%. Of course, it’s hard to take Dudley’s hawkishness turn seriously since just a few weeks ago, he was urging caution with the pace of rate hikes.
On the economic front, the calendar was busy:
- Consumer price index was unchanged for July, in-line with expectations for followed June’s 0.2% increase. The year-over-year rate stood at 0.8%. Core CPI’s annual rate stood at 2.2%, above the Fed’s 2% target but down slightly from June.
- Housing starts beat expectations, rising 2.1% over last year to a 1.2 million annualized rate (best pace in five months). Single-family permits fell 3.7%.
- Industrial production was solid, rising 0.7% month-over-month for the largest headline increase since November 2014.
Watch for volatility to increase heading into tomorrow’s 11 a.m. release of the Fed’s latest meeting minutes. Investors will be looking for clues as to the odds of a September interest rate hike — which will need to happen if the Fed’s going to stick to its two-quarter-point rate hike forecast from June.
Options traders seem to be preparing for trouble, with the CBOE Volatility Index perking up. That pushed the Credit Suisse AG – VelocityShares Daily 2x VIX Short Term ETN (NASDAQ:TVIX) to a 7%-plus gain for Edge subscribers.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
