Benchmarks closed in the red on Monday after fears of rate hike increased following fresh comments from Fed officials. Rate hike concerns had a negative impact on the utilities sector, which also affected broader markets. While gains in Monsanto boosted the materials sector, increase in shares of Apple helped curb some of yesterday’s losses.
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The Dow Jones Industrial Average (DJI) decreased 0.1% to close at 17,492.93. The tech-laden Nasdaq Composite Index closed at 4,765.78, also losing 0.1%. The S&P 500 fell 0.2% to close at 2,048.04. The fear-gauge CBOE Volatility Index (VIX) increased 4.1% to settle at 15.82. A total of around 5.9 billion shares were traded on Monday, significantly lower than the last 20-session average of 7.2 billion shares. Decliners marginally outpaced advancing stocks on the NYSE. For 49% stocks that declined, 48% advanced.
Fed officials’ hawkish comments raised worries of a possible rate hike next month. Boston Fed President Eric Rosengren said that “most of the conditions that were laid out in the minutes” seemed to be “on the verge of broadly being met.”
Also, St. Louis Federal Reserve President James Bullard said that rates being kept “too low for too long,” could result in “future financial instability even if it doesn’t” show that the U.S. economy is in “that situation today.” He added that the “labor markets are relatively tight” which may “put upward pressure on inflation going forward,” and could be an “important factor” in supporting a move to raise rates.
Further, San Francisco Fed President John Williams said that despite the presidential election, the Fed will raise rates this year. Williams added that the Fed has “proven over and over again that” it can act even “in presidential election years.” He expects 2-3 rate hikes in 2016 and 3-4 rate rises in 2017.
Rate sensitive sector like utilities slumped following Fed officials’ discouraging comments. The Utilities Select Sector SPDR (XLU) lost 0.9% and was the biggest losers among the S&P 500 sectors. Key utilities stocks including PPL Corporation (PPL), Southern Company (SO), American Electric Power Co., Inc. ( AEP), Dominion Resources, Inc. (D) and Exelon Corporation (EXC) declined 1.3%, 1.2%, 1.3%, 1.2% and 1.6%, respectively.
Meanwhile, Monsanto Company’s (MON) shares increased 4.4% on news that Bayer AG ( BAYRY) has offered $62 billion or $122 per share to acquire Monsanto. Gains in Monsanto led the Materials Select Sector SPDR ETF (XLB) to increase 1.2% and become the biggest gainer among the S&P 500 sectors.
Key components from materials sector including Dow Chemical Company (DOW), Alcoa Inc. ( AA), Freeport-McMoRan Inc. (FCX) and E. I. du Pont de Nemours and Company (DD) rose 1.8%, 1.9%, 2.7%and 1.9%, respectively.
Additionally, shares of Apple Inc. (AAPL) advanced 1.3% after the company reportedly asked its suppliers to manufacture more iPhone 7s. The tech giant asked its suppliers to make around 72-78 million iPhones by the end of 2016, much higher than analysts’ expectation of 65 million. Gains in Monsanto and Apple helped curtail some of the losses for the day.
Separately, oil prices declined after Baker Hughes (BHI) reported that U.S. oil rig count remained flat last week. Also, Iran clearly indicated that it has no intention to participate in any immediate crude production freeze meeting. These factors led the WTI crude to decline 0.7% to $48.08 a barrel, settling at its lowest level since May 16. Brent crude also fell 0.8% to $48.35 per barrel.
Decrease in oil prices led the Energy Select Sector SPDR (XLE) to fall 0.3%. Dow components Exxon Mobil Corporation ( XOM) and Chevron Corporation (CVX) fell 0.2% and 0.4%, respectively.
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DOMINION RES VA (D): Free Stock Analysis Report
EXELON CORP (EXC): Free Stock Analysis Report
MONSANTO CO-NEW (MON): Free Stock Analysis Report
BAYER A G -ADR (BAYRY): Free Stock Analysis Report
DOW CHEMICAL (DOW): Free Stock Analysis Report
ALCOA INC (AA): Free Stock Analysis Report
FREEPT MC COP-B (FCX): Free Stock Analysis Report
DU PONT (EI) DE (DD): Free Stock Analysis Report
APPLE INC (AAPL): Free Stock Analysis Report
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CHEVRON CORP (CVX): Free Stock Analysis Report
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