Investors All Ears for Yellen’s Call

Investors are keenly watching whether Janet Yellen, the Chairwoman of the Federal Reserve, will provide any illumination on the subject of rate increases in the future. The apex official will deliver hints on what she will do during her speech in Jackson Hole, Wyoming. The speech will be given in an environment of low volume and low volatility in the stock market.

Unchanged gains

Stocks ended mostly unchanged at the end of the third week on August 19. It was seen that the central bank remained divided over the rise of pace when it comes to raising interest rates. There was a decline of 0.1 percent in Dow Jones Industrial Average and the S&P 500 index also slipped a fraction. Only Nasdaq Composite Index went up by 0.1 percent marking its eighth week of consecutive gains. Only Yellen car clear the air when it comes to rates.

The Federal Reserve chairwoman will speak at the Federal Reserve’s annual symposium in Kansas City on August 26. Market watchers are optimistic of the outcome. Some of them even venture to day that Yellen will use her speech to signal a readiness for rate hike in September. According to market participants, the probability of a rate hike is approximately 18 percent.

Other thoughts

Not everyone, however, expects a positive outcome from Yellen at Jackson Hole. There is a good reason for this line of thought. The Federal Reserve has said or indicated nothing until now. Mixed economic data combined with weak inflation does not support any increase of the rates. According to Robert Pavlik of Boston Private Wealth, the Federal Reserve even then is aware of the imperative to raise rates as quickly as possible. He said that the Fed wants to normalize its monetary policy, but they will not halt the re-investing of maturing bonds and interest into bond market. This places an artificial floor in the latter.

For bond market, it is beginning to act like as if a rate hike in September can actually happe given the Treasury Yields rise and also sell-off in the bond proxy sectors of high yields like telecom and utilities. Pavlik holds the opinion that these two sectors should be watched during the week. It is to be noted that the telecom and utilities sector are the worst performers in August. The two are down four percent and 5.5 percent respectively. The S&P 500 has advanced about 0.5 percent in the same period.

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