Stocks rise on lowered rate hike expectation
US stocks closed slightly higher on Tuesday, 06 September 2016 with the tech-heavy Nasdaq logging a record close as investors digested a weak services-sector report, which might help convince the Federal Reserve to stay its hand as it considers raising interest rates. The S&P 500 and Dow Industrials both edged higher last week after a weaker-than-expected monthly jobs report on Friday bolstered the view that the Fed won't raise interest rates in September, fueling a rise in stocks and other assets perceived as relatively risky.
The Dow Jones Industrial Average finished up 46.16 points, or 0.3%, at 18,538.12. Meanwhile, the Nasdaq Composite rose 26.01 points, or 0.5% to a new closing high of 5,275.91. The S&P 500 index rose 6.50 points, or 0.3%, to close at 2,186.48, led by sharp gains in energy, utilities, and telecom stocks.
The benchmark index erased its opening loss by midday as heavily-weighted health care and technology demonstrated relative strength. The broader market settled near its best level of the day with seven sectors ending in the green. The defensively-oriented telecom services and utilities sectors followed energy on the top of the board. Conversely, financials and industrials led the downside.
Chevron Corp and Boeing shares led the average higher, closing up more than 1%, while shares of Nike, United Technologies, Home Depot and General Electric weighed on blue chips.
The Institute for Supply Management said Tuesday that its nonmanufacturing index fell to 51.4% last month from 55.5% in July. That was the weakest showing since February 2010. The key takeaway from the ISM report is that it appears as if both the manufacturing sector and the non-manufacturing sector experienced a noticeable slowing of activity in August. U.S. employment data released last Friday had already shown slower overall job growth in August and an unemployment rate holding at 4.9%.
The added takeaway is that the slowdown seen on both sides of the economy will likely leave the Fed reluctant to raise the fed funds rate at its September meeting. A number below 50.0 denotes a general contraction in manufacturing activity.
The ICE U.S. Dollar Index, a measure of the greenback against a basket of six rival currencies, was down 1.1% as gold prices settled. The greenback and dollar-denominated commodities tend to move inversely.
Bullion prices rallied on Tuesday, 06 September 2016 to log their highest settlement in nearly three weeks as a fall in the U.S. service-sector index to its weakest level in over six years appeared to diminish the likelihood of a U.S. interest-rate hike this month, fueling a drop in the dollar.
December gold jumped $27.30, or 2.1%, to settle at $1,354 an ounce. December silver soared higher by 77.2 cents, or 4%, to $20.138 an ounce. Gold prices last week had eked out a weekly gain of less than 0.1%, but lost 3.4% for the month of August, the first monthly loss since May.
Crude oil futures settled on a mixed note on Tuesday, 06 September 2016 with West Texas Intermediate crude ending at a one-week high and Brent crude finishing with a loss as traders eyed a pact between the world's two largest crude producers, Russia and Saudi Arabia, aimed at stabilizing the market.
October West Texas Intermediate crude rose 39 cents, or 0.9%, to settle at $44.83 a barrel on the New York Mercantile Exchange, after trading as low as $43.84 during the session. November Brent crude meanwhile, fell 37 cents, or 0.8%, to end at $47.26 a barrel after settling Monday up 1.7% at $47.63.
Russian and Saudi officials on Monday said they would set up a working group to monitor the oil market and come up with recommendations to promote stability. The announcement gave a lift to crude prices though those gains faded by afternoon as the news underwhelmed traders who had been hoping for a production freeze.
Treasuries ended on a higher note with yields dropping through the curve. The yield on the 2-yr note ended lower by seven basis points (0.72%) while the yield on the 10-yr note settled lower by seven basis points (1.54%).
Today's participation was above the recent average as more than 835 million shares changed hands on the NYSE floor.
Tomorrow's economic data will include the 7:00 ET release of the weekly MBA Mortgage Index. Separately, the Job Openings and Labor Turnover Survey for July and the Fed's Beige Book for September will cross the wires at 10:00 ET and 14:00 ET, respectively.
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