Wall St dips on rate hike bets

Investors are turning their focus to a speech from Fed chair Janet Yellen at the Jackson Hole conference next week.

US stocks edged lower as rate hike expectations firmed. Picture: AP Photo/Seth Wenig.

US stocks slipped slightly Friday, as investor expectations for a Federal Reserve rate increase later this year rose.

The Dow Jones Industrial Average fell 45.13 points, or 0.2 per cent, to 18552.57 and the S&P 500 declined 0.1 per cent. The Nasdaq Composite edged down 0.03 per cent.

Traders said they expect quiet trading sessions and small stockmarket moves early next week as earnings season has wound down and many desks have emptied due to vacation schedules.

“It’s dead out there,” said Brett Mock, managing director at brokerage JonesTrading Institutional Services LLC. “After weeks of drifting higher, the market is lacking catalysts. As other focuses fade, it’s still a policy-driven market.”

Indeed, traders and analysts are increasingly grappling with whether the Fed will raise rates in the coming months, and are turning their attention to next week’s Jackson Hole, Wyo., symposium, a closely watched monetary-policy conference. Fed Chairwoman Janet Yellen is scheduled to speak at the symposium next Friday and may offer further clues for investors on the course of Fed policy.

Stocks had edged higher earlier in the week after minutes from the Fed’s July meeting suggested officials were in no hurry to act. But those bets began to unwind after San Francisco Fed President John Williams said Thursday that the central bank should move to raise interest rates “sooner rather than later.”

New York Fed President William Dudley also struck an upbeat note on the economy, saying “the strong jobs reports released over the past two months have helped allay concerns that arose earlier this year that job growth was beginning to stall.”

The odds of a rate increase by December, as measured by Fed fund futures, which are used by investors to bet on interest-rate policy, rose to just over 50 per cent on Friday. That is compared with a 46.9 per cent chance the previous day, according to CME Group.

The prospect of higher US interest rates tends to strengthen the dollar and lead to higher government bond yields but weaken stock markets, which have been boosted for years by ultraloose monetary policy.

The yield on the 10-year Treasury note rose to 1.580 per cent from 1.536 per cent on Thursday. Yields rise as prices fall.

The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, rose 0.5 per cent. The stronger US currency weighed on dollar-denominated commodity prices. Gold pulled back 0.8 per cent to $US1,340.40 an ounce.

US-traded crude oil edged up 0.6 per cent to $US48.52 a barrel after a six-session winning streak sent oil prices into a bull market on Thursday. Traders had drawn encouragement in recent sessions from falling US stockpiles and talk of a production cap by the Organization of the Petroleum Exporting Countries.

In corporate news, final quarterly earnings reports trickled in. As of Friday, about 95 per cent of companies in the S&P 500 have reported their second-quarter results, according to FactSet. Based on those results, S&P 500 earnings contracted for the fifth consecutive quarter, though not by as much as analysts had feared, FactSet data show.

On Friday, Deere & Co. shares rose 13.5 per cent after the seller of farm tractors and harvesting combines boosted its full-year earnings forecast and its profit beat expectations in its latest quarter.

Applied Materials shares rose 7.1 per cent after reporting late Thursday that orders reached another record high in the most recent quarter.

Stocks in Europe fell, led lower by shares of banks. The Stoxx Europe 600 slipped 0.8 per cent.

In Asia, Japan’s Nikkei Stock Average rose 0.4 per cent as the yen retreated slightly. The dollar was last up 0.1 per cent against the yen at Yen100.2140.

Shares in Hong Kong ended 0.4 per cent lower, giving back some of Thursday’s gains, while Australia’s S&P ASX 200 index inched up 0.3 per cent.

Dow Jones