Stocks Close Mostly Lower Ahead Of Next Week's Fed Meeting - U.S. Commentary

(RTTNews) - After ending the previous session nearly flat, stocks moved mostly lower over the course of the trading day on Friday. Uncertainty about the outlook for monetary policy weighed on the markets ahead of next week's Federal Reserve meeting.

The major averages climbed off their worst levels going into the close but remained stuck in the red. The Dow fell 61.49 points or 0.4 percent to 16,987.51, the Nasdaq dropped 24.21 points or 0.5 percent to 4,567.60 and the S&P 500 slid 11.91 points or 0.6 percent to 1,985.54.

With the losses on the day, the major averages all moved lower for the week. The Nasdaq edged down by 0.3 percent, while the Dow and the S&P 500 fell by 0.9 percent and 1.1 percent, respectively.

The weakness on Wall Street came as the release of upbeat U.S. retail sales data added to recently renewed concerns about the outlook for interest rates.

Before the start of trading, the Commerce Department released a report showing that retail sales rose by 0.6 percent in the month of August, in line with economist estimates.

The report also showed a notable upward revision to the data for July, with sales rising by 0.3 percent after originally being reported as virtually unchanged.

Paul Dales, Senior U.S. Economist at Capital Economics, said the August sales growth combined with the upwardly revised July data suggests that annualized real consumption growth in the third quarter will come in between 1.5 and 2.0 percent, a bit stronger than previously expected.

Thomson Reuters and the University of Michigan also released a report showing a much bigger than expected improvement in consumer sentiment in the month of September.

The data added to speculation that the Fed may begin raising rates sooner than anticipated, with traders looking ahead to the central bank's monetary policy announcement next Wednesday.

The Fed is expected to announce a further reduction in the pace of its asset purchases, although traders are likely to pay closer attention to any clues about the outlook for rates.

Earlier this week, analysts repeatedly pointed to a report from the San Francisco Fed that said the public seems to expect more accommodative monetary policy than the central bank's projections suggest.

The public also appears to be less uncertain about the future course of monetary policy than FOMC participants, the San Francisco Fed said.

Sector News

Reflecting the worries about higher interest rates, commercial real estate stocks turned in some of the market's worst performances on the day. The Morgan Stanley REIT Index plunged 3.2 percent to its lowest closing level in well over three months.

Health Care REIT (HCN) helped lead the sector lower after pricing an underwritten public offering of 15.5 million shares of common stock at $63.75 per share.

Significant weakness was also visible among oil service stocks, as reflected by the 2 percent loss posted by the Philadelphia Oil Service Index. The weakness in the sector came as crude for October delivery slid $0.56 to $92.27 a barrel.

Rate-sensitive utilities stocks also came under considerable selling pressure over the course of the session, dragging the Dow Jones Utilities Average down by 1.8 percent. NiSource (NI), Williams (WMB), and NextEra Energy (NEE) posted notable losses.

Natural gas, housing, and gold stocks also saw significant weakness on the day, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Friday. Japan's Nikkei 225 Index rose by 0.3 percent, while Hong Kong's Hang Seng Index dipped by 0.3 percent.

The major European markets also ended the day mixed. While the German DAX Index fell by 0.4 percent, the U.K.'s FTSE 100 Index edged up by 0.1 percent and the French CAC 40 Index closed just above the unchanged line.

In the bond market, treasuries moved sharply lower on the heels of the upbeat retail sales data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.3 basis points to a two-month closing high of 2.614 percent.

Looking Ahead

While the Fed's monetary policy announcement is likely to take center stage next week, traders are also likely to keep an eye on reports on industrial production, housing starts, and wholesale and consumer price inflation.