US stocks ended mostly lower on Friday after US Federal Reserve officials said the case has strengthened for raising interest rates above the super-low levels that have helped fuel a seven-year bull market.
Major US indices initially climbed after a speech by Fed Chair Janet Yellen that was bullish on the economy, but gave no timetable for future rate increases. Then investors began to have second thoughts, wondering if an increase was possible as early as next month, and buyers turned to sellers.
By the close of trading, seven of the 10 sectors of the Standard and Poor’s 500 index had fallen, led by a 2.1 percent drop in utilities.
Investors frustrated with low-yielding bonds have flocked to utilities for their steady dividends, but higher rates would make those stocks less attractive.
The S&P 500 slid 3.43 points, or 0.2 percent, to 2,169.04. The Dow Jones industrial average fell 53.01 points, or 0.3 percent, to 18,395.40. The NASDAQ composite rose 6.71 points, or 0.1 percent, to 5,218.92.
In her speech in Jackson Hole, Wyoming, Yellen said that the Fed is moving toward raising interest rates in light of a solid job market and an improved outlook for the economy. However, she stopped short of signaling when the next rate hike might be.
Stocks climbed as investors perceived her comments as “dovish,” meaning a continuation of the easy money policies. Yields on government bonds fell.
However, by the end of the day both stocks and bonds had reversed, with the yield on the 10-year Treasury note rising to 1.62 percent from 1.58 percent late on Thursday.
Perhaps helping the turn of sentiment were comments on CNBC from US Fed Vice Chair Stanley Fischer suggesting the central bank could raise rates twice before year’s end, instead of once in December as many investors had been expecting.
US Bank Wealth Management senior vice president Lisa Kopp said she was not surprised by the selling given the “jitteriness” in the markets.
“Anything that’s not going to be straight-out dovish is going to be disappointing,” she said.
Yellen’s speech notwithstanding, not everyone is convinced a rate hike is coming soon.
“She suggests the economy is improving, but the GDP numbers for the past three quarters are closer to 1 percent than 3 percent,” R.W. Baird chief investment strategist Bruce Bittles said. “That is very anemic.”
A report early in the day from the US Department of Commerce showed that second-quarter GDP rose by a revised 1.1 percent, slightly lower than initially forecast.
Since exiting the recession in the summer of 2009, the US economy has been growing sluggishly, making it the slowest recovery since World War II.
Among stocks making moves on Friday, Herbalife fell US$1.43, or 2.3 percent, to US$60.50 after news reports that Carl Icahn, the company’s biggest shareholder and defender, has been trying to unload his stake in the embattled company. After trading closed, Icahn said the reports were wrong and that he had bought more shares.
Design software company Autodesk jumped US$5.17, or 8 percent, to US$68.87 after reporting a small profit, beating expectations of a loss.
Earnings per share for companies in the S&P 500 index are expected to fall 1.8 percent in the second quarter, according to S&P Global Market Intelligence. That would be the fourth quarter in a row of drops.
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