Tag: Wall Street

United States stocks dropped on Friday as investors were unnerved by a nuclear test by North Korea and comments by a U.S. Federal Reserve official that pointed towards an interest rate hike.

North Korea conducted its fifth and biggest nuclear test on Friday and said it had mastered the ability to mount a warhead on a ballistic missile, drawing condemnation from the United States as well as China, Pyongyang’s main ally.

There was further pressure on the equity market after Boston Fed President Eric Rosengren, a historically dovish policymaker, said the Federal Reserve increasingly faced risks if it waited too much longer. He said a gradual policy tightening was likely appropriate, although he added the central bank was unlikely to raise rates too rapidly.

“Certainly, the posturing of the Fed is creating a lot of noise, and when you get comments like that, it creates a little bit of anxiety in the market,” said Phil Blancato, chief executive of Ladenberg Thalmann Asset Management in New York.

But Fed Governor Daniel Tarullo, also a voting member, was more cautious and said on Friday in an interview with CNBC that he wanted to see more evidence of U.S. inflation rising back toward the central bank’s two percent target, although he would not discount the possibility of a hike this year.

The Dow Jones industrial average .DJI fell 194.77 points, or 1.05 percent, to 18,285.14, the S&P 500 .SPX lost 26.65 points, or 1.22 percent, to 2,154.65 and the Nasdaq Composite .IXIC dropped 59.40 points, or 1.13 percent, to 5,200.09.

The Fed will hold a two-day policy meeting on Sept. 20-21. Expectations for a September rate hike climbed to 27 percent in the wake of the Fed comments, according to CME’s FedWatch tool, up from 18 percent the previous day.

Utilities .SPLRCU and telecoms .SPLRCL were down 2.3 percent and 1.8 percent, and were among the worst performing of the 10 major S&P sectors. The sectors have been strong performers on the year as their high dividends have been used by investors as a bond proxy.

U.S. stocks have been subdued for two months, with the benchmark S&P 500 index failing to register a move of more than one percent on a closing basis in either direction since July 8. The index is currently on track for its worst day since June 27.

U.S. wholesale inventories were unchanged in July as previously reported and sales fell, suggesting a limited boost to economic growth from restocking in the third quarter.

Energy .SPNY shares, down 1.8 percent, also slumped as Brent LCOc1 and U.S. crude CLc1 fell nearly 3 percent after surging more than 4 percent in the prior session. Exxon Mobil (XOM.N), off 1.6 percent to $87.64, was the biggest drag on the S&P 500.

UNITED States stocks were weaker but well of their lows on Friday morning as a disappointing jobs report raised doubts about the strength of the labor market and whether the economy was robust enough for an interest rate hike.

Nonfarm payrolls rose by 142,000, below the 203,000 that economists had expected, and August and July figures were revised lower. The jobless rate held steady at 5.1 per cent but average hourly wages fell by a cent from August.

With job growth slowing for the last three months, economists said the Federal Reserve was now unlikely to raise interest rates this year.

The report, the last before the Fed’s meeting at the end of October, appeared to belie Fed Chair Janet Yellen’s comment last week that the U.S. economy was strong enough to withstand a rate hike this year.

A small hike in rates would be a vote of confidence in the economy and help calm volatile equity markets.

“The Fed has to be off the table until 2016 now,” said Jonathan Lewis, chief investment officer at Samson Capital Advisors in New York.

“This jobs number was extraordinarily weak, and it was a warning signal to the entire world that they can’t rely on the U.S. for growth.”

U.S. interest rates futures rose sharply after the jobs report. Odds of a December rate hike fell to a little over 27 per cent from 44 per cent before the report.

With the third-quarter earnings season starting next week, investors are also starting to factor in what is likely to be the biggest decline in earnings for S&P 500 companies in six years.

The dim outlook for U.S. corporate results have some strategists talking about an “earnings recession” – meaning two quarters of declining profits in a row.