With the exception of banking stocks, which will benefit from any rise in interest rates, all other sectors closed in negative territory for the week. Notably utility stocks, again, took the brunt of the selling, as utilities are seen as an equity alternative to fixed income. In all, the Dow Industrials, which was lower four out of five days closed on Friday nearly 1% below where it started the week. The S&P faired a bit better with a decline of 0.7% and the NASDAQ was negative by about half of that, thanks to some strength in technology stocks. The Dow Transportation Average was hit with a 1.3% loss.
The culprit for the week, no surprise: The Federal Reserve Bank. The lead bank chair, Janet Yellen, in a speech in Jackson Hole, Wyoming on Friday, indicated the FOMC was nearing the point of raising short-term interest rates, stopping short of announcing a September hike. Markets moved higher on the vagueness of the timing, but after Vice Chairman Stanley Fisher indicated the possibility of a September and December hike, the Dow reversed over 225 points from its high of the day. The probability of a September move rose to 40% from 20% a few weeks ago and virtually 0% after the Brexit vote.
Looking ahead, Friday will be a key session as all eyes will be on the August employment report, which is expected to show 180,000 new jobs were added for the month and the unemployment rate dropping to 4.8%. Barring any surprises, the expected number will all but cement a September 0.25% hike in the federal funds rate. Short of positions in utilities and some telecom shares, I believe the best path for investors is to remain well positioned in quality stocks as the economy slowly strengthens.
Here is the answer to last week’s trivia question: Alternative investments of various strategies using a pool of funds from sophisticated investors is known as a? Closed End Fund, Hedge Fund, Exchange Traded Fund or Fund-of-Funds. Answer: Hedge Fund.
Today’s Trivia Question: Otis Elevator Co. was founded in Yonkers, NY in 1852 by Elisha Otis. Otis is a subsidiary of what company? General Electric, Honeywell International, United Technologies or Siemens AG.