Stocks close lower as traders keep focus on coming Fed speech
Stocks closed lower Wednesday, with health care shedding more than 1.5 percent, while investors eagerly awaited a speech from Federal Reserve Chair Janet Yellen.
“That’s the No. 1 thing markets are going to be focused on,” said Matt Tuttle, chief investment officer at Tuttle Tactical Management, referring to Yellen’s speech. “I don’t think anyone has too much conviction ahead of that speech.”
The S&P 500 ended 0.52 percent lower, with health care leading decliners. The Dow fell 65 points, with UnitedHealth Group contributing the most losses.
The Nasdaq shed 0.81 percent, with the iShares Nasdaq Biotechnology ETF losing more than 3.5 percent. Biotechs erased earlier gains in afternoon trade after Democratic presidential nominee Hillary Clinton tweeted about the recent price hikes on EpiPens.
“The biggest problem is there is no worthy news to move the market right now,” said Bruce McCain, chief investment strategist at Key Private Bank.
“We’ve been in a very tight range and the VIX is low … and that signals complacency,” said Jeff Kravetz, regional investment strategist at the Private Client Reserve at U.S. Bank. He also said he was advising clients to be cautious heading into the fall.
Yellen is scheduled to speak on the U.S. economy and monetary policy Friday at 11 a.m. ET against a backdrop of recent hawkish rhetoric from two of her top lieutenants, New York Fed President William Dudley and Fed Vice Chairman Stanley Fischer.
“What’s amazing is we’ve recently geared up for something big from the Fed, and then there’s a big nothing,” said JJ Kinahan, chief strategist at TD Ameritrade. He also said he expects Yellen’s speech to be a non-event.
Key Private Bank’s McCain said investors are hoping Yellen does not say too much that could move the market. “It’s a boring time in the markets and investors are hoping it stays boring because prices keep going up,” he said.
“They all basically opened the door for a rate hike in 2016,” said Ernie Cecilia, CIO at Bryn Mawr Trust. “It seems … they’re trying to put the word out that a rate hike may be possible.”
“I think the market is handling it pretty well,” he said.
U.S. closed slightly higher on Tuesday, with the Nasdaq hitting a new all-time intraday high of 5,275.74, while the S&P came within one point of breaking its all-time high of 2,193.81, reached last week.
That said, stocks have traded in a very tight range amid low volume and low volatility. The S&P posted its 32nd straight session without closing at least 1 percent higher or lower on Tuesday.
“This is still a market with a lot of risk,” said James Abate, CIO at Centre Funds. He noted that, because sovereign yields are so low, investors have turned to equities in their search for yield. The main problem here, Abate said, is “10 years of income can be wiped out in two days.”
“Look at Bristol-Myers and Corrections Corp. These are names that were bought mainly for yield,” he said. Both stocks are in bear market territory, or down at least 20 percent from their 52-week high.
Investors also watched oil markets, with U.S. crude settling 2.77 percent lower at $46.77 a barrel after the Energy Information Administration said U.S. crude stockpiles rose by 2.5 million barrels.
On the data front, existing home sales for July fell 3.2 percent, more than expected. New home sales data, released Tuesday, reached their highest level in almost nine years.
“I think that we are on a much better place when this market reacts to good news (housing yesterday) in a constructive way. That’s a very good sight and an important inflection point,” Art Hogan, chief market strategist at Wunderlich Securities, said in an email.
In corporate news, RBC reported better-than-expected quarterly results, with funds set aside to cover bad loans falling thanks to higher oil prices.
La-Z-Boy reported a 1.9 percent drop in same-store sales for its fiscal first quarter. The firm also posted adjusted earnings of 28 cents a share on revenue of $341 million, missing expectations. La-Z-Boy shares fell more than 12.5 percent in afternoon trade.
U.S. Treasurys traded mostly flat, with the two-year note yield near 0.75 percent and the 10-year yield around 1.55 percent. The U.S. dollar rose against a basket of currencies, with the euro near $1.126 and the yen around 100.43.
Gold futures for December delivery settled $16.40 lower at $1,329.70 per ounce.