Wall St ends lower as Yellen eyes looming rate rise

US stocks first bounced, then dropped into the red, after the Fed chair said the case for a rate hike was stronger.

US stocks bounced after Fed chair Janet Yellen struck a more hawkish tone. Picture: AP Photo/Seth Wenig.

The S&P 500 was on track for its biggest weekly decline since late June, after Federal Reserve Chairwoman Janet Yellen said the case for an increase in US short-term interest rates has strengthened in recent months.

The remarks, which had been anxiously awaited all week, sparked an initial reaction to sell stocks and government bonds that quickly reversed itself. Then later in the session, stocks and US Treasurys again drifted lower, as investor expectations for a rate rise later this year climbed.

Dr Yellen’s remarks, which were part of a speech at the annual economic symposium in Jackson Hole, Wyo., were fairly consistent with what Fed officials have been saying in recent weeks.

“The statement was no big shock. We would fully expect the Fed chair to say the timing seems more appropriate sooner than later” given current market conditions, said Ryan Larson, head of US equity trading for RBC Global Asset Management, referring to how stock pries remain near record highs, volatility is low and labor markets have been strong.

The Dow Jones Industrial Average recently was down 44 points, or 0.2 per cent, at 18405 after earlier rising as much as 124 points. The S&P 500 recently shed 0.1 per cent, and the Nasdaq Composite was up 0.1 per cent.

The S&P 500 was on track for its biggest weekly decline since the week ending June 24, the week the UK voted to leave the European Union.

Stock markets have traded in a narrow range this week with a light calendar of economic and earnings releases. Loose US monetary policy has been the driving force in financial markets recently, keeping the dollar weak and supporting stocks and bonds.

The dollar fell shortly after Dr Yellen’s comments were released, only to reverse course later in the session. The WSJ Dollar Index, which measures the US currency against 16 others, rose 0.8 per cent.

The 10-year Treasury yield rose to 1.631 per cent from 1.561 per cent ahead of the Yellen remarks and 1.576 per cent on Thursday.

Expectations that the Fed will raise interest rates later this year rose following Dr Yellen’s remarks. Trading in fed-fund futures suggested investors were assigning a roughly a 61 per cent probability to the Fed raising interest rates by December and a 36 per cent chance of a September move, according to data from CME Group.

A day earlier, fed-fund futures were assigning a 21 per cent probability for a rate rise in September and a 52 per cent chance of an increase by December.

The speech by Dr Yellen makes next week’s jobs report for the month of August more important, and it could shake an otherwise quiet market, analysts and traders said.

“If we have a spate of stronger data, you’re going to start seeing volatility tick up,” said Quincy Krosby, market strategist at Prudential Financial. Next Friday’s nonfarm payrolls report could be enough to swing expectations even further into the camp of a September rate move, Ms Krosby said.

Meanwhile, the US crude oil price edged up 0.7 per cent to $US47.64 a barrel.

The Stoxx Europe 600 gained 0.5 per cent. Shares in Asia were mixed. Japan’s Nikkei Stock Average fell 1.2 per cent, weighed down by a stronger yen after data showed a fifth straight monthly decline in Japanese consumer prices. The dollar fell 0.3 per cent against the yen to Yen100.310 recently, hurting Japanese exporters.

The Shanghai Composite Index rose less than 0.1 per cent, while Australia’s S&P ASX 200 closed down 0.5 per cent.

Dow Jones