MARKET SNAP: At 6:00 a.m. ET, S&P 500 futures down 0.1%. 10-Year Treasury yield edges higher to 2.77%. Nymex down 25 cents at $98.91. Gold 0.1% lower at $1327.60. In Europe, FTSE 100 down 0.9%, DAX down 0.8% and CAC 40 down 0.7%. In Asia, Nikkei 225 down 1.7% and Hang Seng down 1.8%.
WATCH FOR: Weekly Jobless Claims (8:30 a.m. Eastern Time): seen 320K; previously 315K. February Existing Home Sales (10:00): seen -0.4% to 4.6 million; previously -5.1% to 4.62 million. March Philadelphia Fed Manufacturing Survey (10:00): seen 4.3; previously -6.4. February Leading Index (10:00): seen +0.3%; previously +0.3%. AAR, Burlington Stores, Cintas, ConAgra Foods, IHS, Lennar, New York & Co., Nike, Scholastic, Shoe Carnival, Tibco Software and Wet Seal are among companies scheduled to report quarterly results.
THE BREAKFAST BRIEFING
The old cliché on Wall Street is markets hate uncertainty. Well, they might dislike certainty just as much.
Janet Yellen surprised investors in her first press conference at the helm of the Federal Reserve when she tried to specify when the central bank would begin raising interest rates. The Fed, in its policy statement, said the benchmark federal-funds rate will remain near zero for a “considerable time” after its signature bond-buying program ends.
But at the press conference when Ms. Yellen was asked to clarify that timing, she said it is “hard to define” but that it “probably means something on the order of around six months.”
That means the Fed could potentially raise rates sometime in the first half of 2015, assuming it keeps dialing back the bond-buying program at the current pace.
Such a timetable didn’t sit too well with investors.
The Dow Jones Industrial Average fell as many as 210 points before finishing the day down 114 points. Late Wednesday the benchmark 10-year Treasury yield rose to 2.770%, according to Tradeweb, up from 2.714% right before the Fed’s statement. The yield remained at that raised level this morning, while stock markets across Europe and Asia fell.
“It is hard to know if Yellen wanted the market (which has taken it hard on the chin following that particular remark) to start thinking of a mid-2015 hike, but that is what was implied by her statement,” said Millan Mulraine, director of U.S. research and strategy at TD Securities.
The Fed’s latest projections showed most officials—13 of 16—expect to start raising short-term rates in 2015. Just one official expected to begin lifting rates this year and two expected the Fed will wait until 2016. Those projections don’t deviate much from Ms. Yellen’s off-the-cuff remark at the press conference.
But as U.S. stock prices fell and Treasury bond yields rose, many market participants interpreted the projections and Ms. Yellen’s comments as possibly indicating that interest rates could rise sooner and higher than initially expected.
“The Fed is pulling away faster than the market thought it would,” Andrew Brenner, head of international fixed income at National Alliance Capital Markets in New York, told MoneyBeat.
To be sure, some investors suspect the markets overreacted to Ms. Yellen’s specific time frame.
“I think her comments may have been taken too seriously by traders as being a definite rate-hike projection,” said Daniel Wiener, chief executive at Adviser Investments in Newton, Mass. “Wall Street loves to shoot first and maybe ask questions later.”
Others noted the market has exhibited a pattern of falling on Fed days. Those declines were typically short-lived.
“Any pullback that’s related to the [Fed], since November, has been a buying opportunity, and I see no reason why this one wouldn’t be as well,” Doug Crofton, managing director in cash equity trading at Bank of America Merrill Lynch, told the Journal.
The difference this time is investors know that the Fed will eventually need to start raising rates. The economy isn’t there yet, but it’s getting closer to that point. Placing a timeline on such a move still seems a bit premature.
“Suggesting a six-month gap between the end of asset purchases and rate hikes is not a great start since the decision will be based on factors that don’t follow any script,” said Joel Naroff, chief economist at Naroff Economic Advisors. “It could be shorter or a lot longer so it was unnecessary to provide a time frame, especially without saying what could alter that period.”
Morning MoneyBeat Daily Factoid: On this day in 1854, abolitionists from the disintegrating Whig Party met in Wisconsin to discuss the formation of a new political party; it was at this meeting that the Republican Party was formed.
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