Equities fluctuated with the S & P hovering around a one month low amid data that bolstered the argument for higher borrowing cost, while remarks from FRB Chair Yellen signaled the central bank will remain deliberate in rising rates.
Commenting further about Yellen, the Chair started there are “plausible ways” that running the economy hot for a while could fix some of the damage caused to growth during the recession, indicating a willingness to only lift rates slowly even as inflation reaches or surpasses it target.
Some could interpret the above remarks as dovish but are they? Interest sensitive ideas have come under considerable pressure during the past two weeks as the markets fear the Fed is falling behind the proverbial curve as inflationary expectations are rising, partially the result of crude.
Several weeks ago I referenced data provided by Bloomberg that it would take about a 45% decline in utilities to return to its average dividend yield. I am not suggesting that this will occur but only making an observation. Utilities are now down about 7% in 10 days and have posted the steepest short term decline since the implosion of Enron. Utilities—or a favorite for alternative income investors—are off almost 10% from their July apex.
Earning season accelerates this week. As previously noted expectations are very low with some already pronouncing the current season a complete disappointment. I do not agree with this assessment but will write there are wide ranging implications of revenues growing greater than profits, the first time in many years.
Will this trend continue and if so how will it be interpreted?
The economic calendar is comprised of several manufacturing and inflation statistics as well as housing data. Also released is the Beige Book or the statistical compilation utilized at the upcoming Fed meeting.
Last night the foreign markets were down. London was down 0.62%, Paris down 0.25%, and Frankfurt down 0.33%. China was down 0.74%, Japan up 0.26% and Hang Sang down 0.85%.
The Dow should open flat ahead of a large increase in earnings reports. The 10-year is up 3/32 to yield 1.79%.