Stock Market News For August 17, 2016

A day after notching record highs, benchmarks retreated and closed in the red on Tuesday following hawkish comments from Fed officials. Both William Dudley and Dennis Lockhart expect that there is a possibility of a rate hike this year. Meantime, rise in industrial output and home building suggested a pickup in economic activity. But, consumer prices remained unchanged last month, a sign that shows inflation remains tepid.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.

The Dow Jones Industrial Average (DJI) dropped 0.5%, to close at 18,552.02. The S&P 500 declined 0.6% to close at 2,178.15. The tech-laden Nasdaq Composite Index closed at 5,227.11, decreasing 0.7%. The fear-gauge CBOE Volatility Index (VIX) soared 7.9% to settle at 12.75. A total of around 5.9 billion shares were traded on Tuesday, lower than the last 20-session average of 6.4 billion shares. Decliners outpaced advancing stocks on the NYSE. For 67% stocks that declined, 30% advanced.

Comments by Fed officials fueled speculation that a rate hike was likely this year. New York Federal Reserve Bank President William Dudley said that time to raise interest rates is approaching and it could come about as early as September. Dudley said that the labor market is adding 190,000 jobs on an average in the last three months and that the economy should gain momentum in the second half of the year. He added that “we’re starting to see signs of wage gains starting to accelerate”.

Dudley’s views are always being closely watched since he is a close ally of Fed Chairwoman Janet Yellen and a voting member of the Fed’s policy committee. Atlanta Fed President Dennis Lockhart also said that the economy is strong enough to withstand at least one rate hike this year. However, these comments weighed on investors’ sentiment. They now await the release of the minutes from the Fed’s July meeting to gain further insight as to when the Fed will raise rates.

The Utilities Select Sector SPDR (XLU) declined 1.2%, the highest among the S&P 500 sectors. Utilities are income-paying stocks and are viewed as alternatives to bonds. Utilities generally take a beating when interest rate expectations rise. Key utilities stocks including NextEra Energy (NYSE:NEE), Inc. (NEE), Duke Energy Corporation (NYSE:DUK) (DUK), Southern Company (NYSE:SO) (SO), Dominion Resources (NYSE:D), Inc. (D) and PG&E Corporation (PCG) decreased 1.1%, 1.5%, 1%, 0.4% and 1.3%, respectively.

On the economic front, industrial production in July saw its biggest gain in 20 months. The Board of Governors of the Federal Reserve System reported that industrial production increased 0.7% in July, posting its highest percentage increase since Nov 2014. The rise in industrial production in July was higher than the consensus expectation of 0.3% increase. Also, capacity utilization advanced from 75.4% to 75.9% last month, more than the consensus expectations of 75.6%.

Housing starts also rose 2.1% in July from June to a seasonally adjusted annual rate of 1,211,000, beating the consensus estimate of 1,175,000, according to the U.S. Department of Commerce. However, building permits went down 0.1% from June to a seasonally adjusted annual rate of 1,152,000 last month. It was also lower than the consensus estimate of 1,162,000.

Separately, the Labor Department reported that Consumer Price Index (CPI) remained unchanged in July, in line with the consensus estimate. This was preceded by a 0.2% increase in June. Core CPI, which excludes food and energy prices gained 0.1% last month, less than the consensus estimate of a gain of 0.2%.

NEXTERA ENERGY (NEE): Free Stock Analysis Report

DUKE ENERGY CP (DUK): Free Stock Analysis Report

SOUTHERN CO (SO): Free Stock Analysis Report

DOMINION RES VA (D): Free Stock Analysis Report

PG&E CORP (PCG): Free Stock Analysis Report

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