Wall Street pushed down by rate expectations, DPRK, Apple

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US stock indexes slipped on Thursday as investors braced for a third interest rate hike this year and the United States ordered new sanctions against the Democratic People's Republic of Korea (DPRK).

The S&P and the Dow snapped a run of record closing highs and Apple was the biggest drag on the three major indexes with a 1.7-percent drop on worries about demand for its latest smartphone.

Investors increased bets the US Federal Reserve would raise rates again this year after the central bank’s statement on Wednesday and were also assessing its decision to start reducing its roughly 4.2 trillion dollars in US Treasury bonds and mortgage-backed securities.

US President Donald Trump opened the door to blacklisting people and entities doing business with the DPRK, further tightening the screws on Pyongyang’s nuclear and missile programs.

US President Donald Trump during his meeting with Turkish President Recep Tayyip Erdogan (not seen), at Lotte Hotel in New York, United States on September 21, 2017. /VCG Photo

“The Fed had investors on edge already,” said Chris Zaccarelli, chief investment officer at Cornerstone Financial Partners, in Huntersville, NC., adding that ratcheting up of the DPRK tensions can put investors in a little more of a risk-off mode.

However, with the CBOE Volatility Index closing at its lowest level in nearly two months at 9.67, Peter Cecchini, chief market strategist at Cantor Fitzgerald in New York, said the market is not reflecting risks such as US-DPRK tensions and high valuations.

The market is “very complacent and very comfortable in its own skin right now and not really concerned about risk much at all,” said Cecchini: “I‘m worried about that.”

The Dow Jones Industrial Average fell 53.36 points, or 0.24 percent, to 22,359.23, the S&P 500 lost 7.64 points, or 0.30 percent, to 2,500.6 and the Nasdaq Composite dropped 33.35 points, or 0.52 percent, to 6,422.69.

Fed Chair Janet Yellen said the fall in inflation this year remained a mystery, adding that the central bank was ready to change the interest rate outlook if needed.

Investors were pricing in about a 70 percent chance of a December hike, according to CME’s FedWatch tool, up from about 51 percent just prior to the Fed statement.

Only two of the 11 major S&P sectors – financials and industrials – were higher, with gains of 0.2 percent and 0.3 percent. The consumer staples index was the biggest decliner, down 0.97 percent drop.

Financial stocks have been on a tear in recent days as investors anticipated and then reacted to Fed commentary on rate hikes, which tend to help bank profits.

The S&P has risen about 11.7 percent so far this year, helped by strong corporate profits and lingering optimism among some investors that Trump will cut taxes for businesses.

“It’s very hard for me to see a tremendous catalyst for the upside, although I also don’t see that massive catalyst to create a crack to the downside,” said Cantor’s Cecchini.

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Source(s): Reuters