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T3's Take 3: Yellen Still Clearing Runway for December Rate Hike


Today's financial recap and tomorrow's financial outlook.

Market Roundup

After a modestly positive start today, stocks gave up Tuesday's gains in hurry.

The S&P 500 notched an early-morning high of 2104.27, but gave up its gains in the afternoon after FOMC Chair Janet Yellen gave a speech indicating the Fed is leaning towards a December rate hike.

The index closed down 1.1% at 2079.51.

The NASDAQ showed some relative strength, falling just 0.6%, as tech held in well relative to the major indices. Qualcomm (QCOM) was a notable outlier to the upside, rising 5.2% on a new licensing deal. Netflix (NFLX) also bucked the bears with a 2.8% gain.

Crude oil was a major factor in today's market slide.

Following a larger-than-expected inventory build, crude oil fell over 5%, breaking $40 for the first time since August.

As a result, energy stocks took a huge beating, with the S&P Energy Sector ETF (XLE) closing down 3.1%. Transports, utilities, and housing stocks were also weak.

So, About That Rate Hike?

Earlier this afternoon, FOMC Chair Janet Yellen spoke at the Economic Club of Washington.

While she did not specifically say a December rate hike was certain, she certainly hinted that one was coming by saying that "Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals."

Yellen also reiterated that she expects inflation to move up to 2% over the next few years, and that the strong dollar is acting as a headwind on exports.

However, the market appeared to be pricing in much of what she said, and we saw a sell-the-news reaction to her commentary.

The US dollar was surging ahead of her 12:25 p.m. ET speech, but sold off shortly thereafter. The 10-Year US Treasury yield also peaked just after her speech.

Yellen testifies tomorrow before the Congressional Joint Economic Committee, and it's unlikely that she'll offer anything new.

Economic News

Following two days of middling economic data, we saw some positive numbers today.

The November ADP employment change was 217,000, handily beating the 190,000 consensus. October's reading was also revised up to 196,000 from 182,000.

The November ISM New York was 60.7 in November, beating economists' forecasts.

Nonfarm productivity was in-line.

The Fed also released its Beige Book today, noting that the US economy is expanding at a modest pace.

The Fed also said that commercial loan demand is strengthening and auto sales are robust, while manufacturing is mixed due to the strong dollar.

Thursday's Financial Outlook

Tomorrow once again promises to be a busy day for economic data. FOMC Chair Janet Yellen will be speaking once again today. In addition, Initial Jobless Claims, ISM Non-Manf. Composite, and Durable Goods Orders will be released.

The ECB Rate Decision will also come out tomorrow morning followed by a Press Conference.

Dollar General (DG), Express (EXPR), Kroger (KR), Ambarella (AMBA), OmniVision (OVTI), Ulta Salon (ULTA), and Zumiez (ZUMZ) report earnings.

No positions in stocks mentioned.
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