by Investing.com Staff, Investing.com
U.S. stocks fell slightly on Friday ending the week on a sour note, after Janet Yellen hinted that the Federal Reserve could raise interest rates at some point this year if the economy continues to show improvement.
The Dow Jones Industrial Average and the S&P 500 Composite index finished lower on the session after setting all-time closing records earlier in the week, while theNASDAQ Composite also closed down after spending most of the session in record territory. Bolstered by gains in the transportation and technology sectors, the NASDAQ appeared on pace to eclipse an all-time closing record from April 24, when it ended the session at 5,092.08. Instead, it closed at 5,089.36, down 1.43 or 0.03% following a late sell-off.
The Dow fell 53.72 or 0.29% to close at 18,232.02, finishing down for the week, while the S&P 500 lost 4.76 or 0.22% to 2,126.06, as nine of 10 sectors closed in the red. Stocks in the Telecommunications, Industrials and Consumer Goods sectors lagged, while stocks in the Technology sector led.
The CBOE Volatility Index, a key measure of the implied volatility of the S&P 500, fell to a yearly-low at 11.82 before ticking up to 12.16 at the close. The VIX index is down by more than 35% on the year.
The top performer on the Dow was Goldman Sachs Group Inc (NYSE:GS), which gained 2.85 or 1.39% to 207.80, capping a strong week for the Financials sector. The worst performer was Boeing Company (NYSE:BA), which fell 2.54 or 1.72% to 144.81. On Thursday, United Launch Alliance, a joint venture between Boeing and Lockheed Martin Corporation (NYSE:LMT) indicated that it could go bankrupt unless it receives additional commercial and satellite orders to compensate for an expected drop in U.S. military and spy launches.
The biggest gainer on the NASDAQ was NetApp Inc (NASDAQ:NTAP), which gained 4.31% to 33.14 to rebound from a poor session on Thursday after it reported worse than expected quarterly earnings. The worst performer, meanwhile, was Ross Stores Inc(NASDAQ:ROST), which fell 4.52 or 4.45% to 97.03, amid weak forward guidance in its quarterly earnings report.
The top performer on the S&P was Quest Diagnostics Incorporated (NYSE:DGX), which rose 5.72 or 7.74% to 79.60. Earlier on Friday, Quest Diagnostics soared nearly 20% after an options trader posted a rumor on Twitter (NYSE:TWTR) that the New Jersey-based clinical laboratory services corporation could be considering a merger. Shares in Quest Diagnostics fell back within minutes after trading was halted early in the session. Ross Stores also finished as the worst performer on the S&P, just behind Frontier Communications Corporation b (NASDAQ:FTR), which dropped 0.18 or 3.37% to 5.16.
The dollar continued its recent rally against the euro finishing higher against its European counterpart for the first time in five weeks, amid mixed U.S. consumer pricing data and comments from key central bankers on both sides of the Atlantic on the short-term outlook of both economies.
EUR/USD closed the week at 1.1014, after ending Friday’s session down 0.0099 or 0.89%. The dollar appreciated significantly against the euro on the week, gaining nearly 3% after the pair opened on Monday at 1.1444. EUR/USD has now fallen in five of the last six sessions.
The pair plunged from a near intra-day high of 1.1175 to a near session-low of 1.1016 within a span of 90 minutes during U.S. morning trading. The first major announcement came around 8:30 EST when the U.S. Bureau of Labor Statistics said its headline Consumer Price Index gained 0.1% in April from the previous month, falling slightly below economists’ forecasts. Over the last 12 months, the CPI-U all items index is down by 0.2%.
A reading of the less volatile Core CPI Index, which excludes food and energy prices, was ostensibly less deflationary. The Core CPI rose 0.3% for the month, its highest gain since January, 2013, and 1.8% on a year-over-year basis. The deflationary pressures could be attributed almost entirely to a sharp drop in energy prices. The Federal Reserve would like to see inflation move toward its targeted goal of 2% on an annual basis before it institutes its first interest rate hike in nearly a decade.
Shortly thereafter, European Central Bank president Mario Draghi emphasized the importance of enacting structural reforms with the European economy during a speech in Sintra, Portugal. Draghi indicated that the reforms have the potential to permanently and positively impact the supply-side of the economy:
“They lift the path of potential output, either by raising the inputs to production – the supply and quality of labor and the amount of capital per worker – or by ensuring that those inputs are used more efficiently, i.e. by raising total factor productivity (TFP). And second, they make economies more resilient to economic shocks by facilitating price and wage flexibility and the swift reallocation of resources within and across sectors.”
Hours later, Federal Reserve chair Janet Yellen said that an interest rate hike will be appropriate at some point in 2015, if there are continual improvements in the U.S. economy. Speaking at a luncheon at the Greater Providence Chamber of Commerce, Yellen indicated that the U.S. economy appears well-positioned for continued growth as transitory factors from a colder than usual winter and a West Coast port labor dispute start to fade.
While the dollar inched up following Yellen’s speech, her address had little impact on the EUR/USD pair. Yields on U.S. 10-Year Treasuries rose by roughly two basis points on Friday to end the session at 2.215%. Bond markets typically rally when the CPI moves higher.
This week speculators were less bearish on the euro, yen, Canadian dollar and Mexican peso.
Gold futures inched up ahead of comments from Janet Yellen on the state of the U.S. economy, as a moderate reading of the Consumer Price Index unleashed further debate on the timing of an interest rate hike from the Federal Reserve.
On the Comex division of the New York Mercantile Exchange, gold for June delivery gained 1.40 or 0.12% to 1,205.05 an ounce. For the week, gold closed down roughly 1.25% after reaching a three-month high on Monday.
Gold continued on a volatile path on Friday, after ticking down 0.38% one session earlier. Last Friday, gold futures closed up by 0.01% capping a four-day winning streak. Since then, the precious metal has not closed in the same direction on two consecutive days underscoring investors’ ambiguity toward the long-term prospects of the global economy.
A relatively benign CPI report for the month of April likely added to their uncertainty. On its face, consumer prices appeared to be soft last month as the headline CPI only gained 0.1% from March, slightly below economists’ forecasts. Over the last 12 months, the CPI-U all items index is down by 0.2%.
A reading of the less volatile Core CPI Index, which excludes food and energy prices, is ostensibly less deflationary. The Core CPI rose 0.3% for the month, its highest gain since January, 2013, and 1.8% on a year-over-year basis. The deflationary pressures could be attributed almost entirely to a sharp drop in energy prices. While crude futures are down more than 40% over the last 52-weeks, they rose by nearly 25% last month.
In April, the Federal Open Market Committee (FOMC) said medium-term forecasts for inflation, which it generally defines as the next two years, projected to “move closer but remained” below its targeted goal of 2%. In March, the Personal Consumption Expenditure index, the Fed’s preferred gauge of inflation, was up by only 0.3% over the last 12 months.
Gold prices plunged to 1,205 on Friday morning 30 minutes after the release of the CPI from 1,212.40 before the U.S. Bureau of Labor Statistics issued the monthly report.
Yellen is expected to address the U.S. economic outlook during an address at the Greater Providence Chamber of Commerce on Friday afternoon. The Fed chair could be looking to test the markets before the FOMC decides on the timing of a rate hike.
Yellen appears concerned that interest rates could spike after initial lift-off, citing the possibility of an increased role of high frequency trading, decreases in inventories held by broker-dealers and the potential for higher assets in bond funds in the April minutes of the FOMC meeting.
She also appears worried that a premature rate hike could cause bond yields to soar in a repeat of a “taper tantrum” in 2013 when her predecessor Ben Bernanke announced his intentions to curtail a comprehensive bond-buying program intended to stimulate the economy. Following Bernanke’s comments, yields on the U.S. 10-year surged, at one point reaching a 29-month high. The incident could prompt Yellen to remain cautious on the timing of lift-off and subsequent gradual rate increases.
Gold, which is not attached to dividends or interest rates, struggles to compete with high-yield bearing assets in periods of rising rates. The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose 0.68% to 96.11 following the release of the CPI.
Silver for July delivery rose 0.05% to 17.123 an ounce.
Copper for July delivery fell 1.43% to 2.808 a pound.
Crude futures fell sharply on Friday paring some of its gains from one session earlier, amid a strengthening dollar aided by slight increases in inflation last month.
On the New York Mercantile Exchange, WTI crude for July delivery plunged 1.06 or 1.75% to 59.66 a barrel. Previously, Long Sweet Texas crude surged more than 4.7% over the prior two sessions amid easing concerns of oversupply. For the week, WTI crude futures fell by more than 1.5% after opening on Monday above $60 a barrel.
Earlier on Friday, crude future plummeted 0.80 to a near session-low of 59.42 in U.S. morning trading after the U.S. Bureau of Labor Statistics released its Consumer Price Index for the month of April. While the headline CPI index rose only 0.1% from March, the reading of the Core CPI index was less benign. Core CPI, which excludes food and energy prices, increased by 0.3% for the month, its highest gain since January, 2013, and 1.8% on a year-over-year basis. The Federal Reserve would like to see inflation move toward its targeted goal of 2% on an annual basis before it institutes its first interest rate hike in nearly a decade.
As a result, the dollar spiked by more than 1%, reaching its highest level in more than three weeks. The dollar also appreciated sharply against the euro, as EUR/USD fell to an intraday low of 1.1003 – its lowest level since April 29. Crude futures tend to move lower when the euro depreciates against the dollar.
On the Intercontinental Exchange (ICE), brent crude for July delivery fell 1.21 or 1.82% to 65.33 a barrel. For the week, brent futures dipped by more than 2% after opening on Monday near $67 a barrel. Meanwhile, the spread between the international and U.S. domestic benchmarks of crude fell to 5.67, down from Thursday’s level of 5.85.
Oil services firm Baker Hughes (NYSE:BHI) said in its weekly U.S. rig count report that oil rigs nationwide fell by one last week to 659, the lowest weekly level since Aug, 2010. While the nationwide rig count has declined for 24 consecutive weeks, the pace of slowdown has dropped considerably since earlier in the year. Last fall, the rig count peaked above 1,600. A falling rig count has eased concerns of oversupply in the U.S. market.
On Wednesday, the Energy Information Administration (EIA) said crude stockpiles nationwide decreased for the third consecutive week amid slower output and increased refinery demand. Last week, U.S. crude output dropped to 9.262 million barrels per day from 9.374 million a week earlier, as production slowed in Alaska. Crude futures were relatively unchanged following the release of the report.
Federal Reserve chair Janet Yellen’s address in Rhode Island on the outlook of the U.S. economy also had little impact on crude prices. In a speech to the Greater Providence Chamber of Commerce, Yellen said she thinks an interest rate hike by the Fed will be appropriate at some point this year if there is enough improvement in the U.S. economy.
Natural Gas (Thursday Report)
Natural gas futures were higher on Thursday, after data showed that U.S. natural gas supplies rose less-than-expected last week.
On the New York Mercantile Exchange, natural gas for delivery in June was up 2.23% to $2.986 per million British thermal units. Prices were at around $2.955 prior to the release of the supply data.
In its weekly report, the Energy Information Administration said natural gas storage in the week ended May 15 rose by 92 billion cubic feet, compared to expectations for an increase of 97 bcf.
Total U.S. natural gas storage stood at 1,989 bcf the EIA said. Stocks were 738 bcf higher than last year at this time and 35 bcf below the five-year average of 2,024 bcf for this time of year.
Meanwhile, updated weather forecasting models pointed to hotter-than-normal temperatures on the East Coast through May 29, boosting early summer cooling demand for the fuel.
Demand for natural gas tends to rise in the summer months as warmer temperatures increase the need for gas-fired electricity to power air conditioning.
Approximately 49% of U.S. households use natural gas for heating, according to the Energy Department.