Stocks end mixed as mar­ket fac­tors in­ter­est rate hike

WALL STREET WEEKLY RE­PORT

Kuwait Times - - BUSINESS -

NEW YORK: Stocks had a mixed re­ac­tion Fri­day to the sur­pris­ingly strong Oc­to­ber jobs re­port as in­vestors ad­justed to the prospect of higher in­ter­est rates as early as next month.

While the ma­jor in­dexes, on the sur­face, had a muted re­ac­tion to the jobs num­bers, look at the in­di­vid­ual parts of the mar­ket showed in­vestors were ac­tively reshuf­fling their port­fo­lios.

Div­i­dend-pay­ing stocks, which are typ­i­cally bought for their higher-than-av­er­age pay­outs when in­ter­est rates and bond yields are low, dropped sharply on Fri­day. The Dow Jones util­ity in­dex, a bas­ket of 15 div­i­dend-pay­ing util­ity stocks, sank 4 per­cent.

In con­trast, bank stocks rose sharply as in­vestors bet that higher in­ter­est rates would trans­late into higher prof­its, since they may be able to charge more for lend­ing. JPMor­gan Chase rose $2.02, or 3 per­cent, to $68.46, Bank of Amer­ica rose 64 cents, or 3.7 per­cent, to $17.95 and Mor­gan Stan­ley rose $1.53, or 4.5 per­cent, $35.41. “You just need to look at those two groups and see that the mar­ket is po­si­tion­ing it­self for higher in­ter­est rates,” said Ryan Lar­son, head of eq­uity trad­ing at RBC Global As­set Man­age­ment. Wall Street has been in a months-long guess­ing game about the Fed­eral Re­serve, try­ing to fig­ure out when the pol­i­cy­mak­ers at the na­tion’s cen­tral bank will fi­nally raise in­ter­est rates. The mar­ket tur­moil over the sum­mer kept the Fed from rais­ing rates at their Septem­ber meet­ing, and pol­i­cy­mak­ers de­cided to wait yet again at their Oc­to­ber meet­ing to see more signs the US econ­omy was on sure foot­ing.

By nearly ev­ery ac­count, the Oc­to­ber jobs re­port gave the Fed ex­actly what they wanted. The La­bor Depart­ment said US em­ploy­ers added 271,000 jobs, far more than the most hope­ful of ex­pec­ta­tions, and the un­em­ploy­ment rate dipped to a fresh seven-year low of 5 per­cent, from 5.1 per­cent. The burst of hir­ing, the most in 10 months, filled jobs across a range of in­dus­tries.

“This makes it pretty likely the Fed will raise rates in De­cem­ber,” said Priscilla Han­cock, a global fixed in­come strate­gist for J P Mor­gan As­set Man­age­ment.

Fed fund fu­tures, which are se­cu­ri­ties that bet on which way the Fed will move in­ter­est rates, now show roughly a 74 per­cent chance of the cen­tral bank rais­ing rates in De­cem­ber, up from 60 per­cent on Wed­nes­day and up from well be­low 50 per­cent as re­cently as late sum­mer. But the size of the pre­dicted in­ter­est rate in­crease re­mains mod­est. In­vestors ex­pect in­ter­est rates will go from their cur­rent 0-to-0.25 per­cent lev­els to 0.5 per­cent.

“The Fed is still go­ing to be ex­tremely ac­com­moda­tive for in­vestors. A rate hike in De­cem­ber is re­mov­ing those emer­gency mea­sures that the bank put into place dur­ing the financial cri­sis,” Han­cock said. The Dow Jones in­dus­trial av­er­age rose 46.90 points, or 0.3 per­cent, to close at 17,910.33. The Stan­dard & Poor’s 500 in­dex fell less than a point to 2,099.20 and the Nas­daq com­pos­ite rose 19.38 points, or 0.4 per­cent, to close 5,147.12.

The bond mar­ket’s re­ac­tion to the jobs num­ber was far more volatile than the stock mar­ket’s, with bond prices sink­ing as in­vestors scaled back their hold­ings of Trea­suries and safer in­vest­ments.

The bench­mark 10-year US Trea­sury note rose to a yield of 2.32 per­cent from 2.23 per­cent on Thurs­day, a big move for that se­cu­rity. The two-year note jumped to a yield of 0.89 per­cent, a five-year high for that note, from 0.83 per­cent the day be­fore.

The data also caused the dol­lar to rise sharply against its ma­jor cur­rency coun­ter­parts. The euro fell to $1.0742, its low­est level in six months, and the dol­lar rose against the Ja­panese yen to 123.19.

The stronger dol­lar caused a sell­off in com­modi­ties as well. Bench­mark crude oil fell 91 cents, or 2 per­cent, to $44.29 a bar­rel and Brent crude, which is used to price in­ter­na­tional oils, fell 56 cents, or 1.2 per­cent, to $47.42 a bar­rel. Gold fell $16.50, or 1.5 per­cent, to $1,087.70 an ounce, sil­ver fell 29 cents, or 2 per­cent, to $14.69 an ounce and high-grade cop­per fell a penny, or 0.6 per­cent, to $2.242 a pound.

In other en­ergy prod­ucts, heat­ing oil rose less than a cent to $1.49 a gal­lon, whole­sale gaso­line fu­tures rose a penny to $1.37 a gal­lon and nat­u­ral gas rose 0.7 cent to $2.371 per 1,000 cu­bic feet. —AP

NEW YORK: A Wall Street ad­dress carved into the side of a build­ing in New York. Global stock mar­kets were sub­dued on Fri­day ahead of a US jobs re­port that’s likely to in­flu­ence whether the Fed­eral Re­serve raises in­ter­est rates in De­cem­ber. —AP

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