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SPY Dipped on Yellen’s Hawkish Policy Comments on November 4

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SPY falls 0.30%

The SPDR S&P 500 ETF (SPY) and the Direxion Daily S&P500 Bull 3X ETF (SPXL) fell by 0.30% and 0.83%, respectively, on Wednesday, November 4, 2015. The stock market’s two-day rally stalled after Janet Yellen, the Federal Reserve chair, commented about a possible rate hike in December 2015.

The data on economic indicators released that day affirmed the strength of the US economy, highlighted by low unemployment levels and continued growth. The ADP employment report and international trade report also suggested growth in the economy.

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Yellen noted that the US economy is performing well and if the economic indicators continue to follow this trend, the December rate hike could become a “live possibility.” The New York Federal Reserve president, William Dudley, agreed with Yellen’s statement. The graph above depicts the market’s reaction to Yellen’s statement.

Market snapshot

According to a November 4 statement by CME Group, investments in the federal funds futures that are based on the central bank’s interest rate policy suggested a 60% probability of a rate hike in December. The next meeting of the FOMC (Federal Open Market Committee) will occur on December 15–16, 2015.

In the above chart, the US dollar is represented by the PowerShares DB US Dollar Bullish ETF (UUP), oil is represented by the United States Oil ETF (USO), and gold is represented by the SPDR Gold Trust ET (GLD). The total bond market is represented by the Vanguard Total Bond Market ETF (BND) and volatility is represented by the S&P 500 Volatility Index.

With an increase in the probability of a December rate hike, the US dollar strengthened, attracting investors to the higher interest rates. Equities and gold lost their appeal when compared to the risks and returns of Treasury notes. Yields on bonds rose on the day, and a strong US dollar drove the commodities lower.

Oil dropped by 2.81% on November 4, following the EIA’s (Energy Information Administration) report on the petroleum status for the week ended October 30, 2015. According to the report, the crude oil inventory rose by 2.8 million barrels for the week. This supply glut sent energy stocks lower on Wednesday, November 4.

Stocks of Baker Hughes (BHI), Cameron International (CAM), QEP Resources (QEP), and Chevron (CVX) fell by 5.3%, 1.4%, 1.4%, and 1.4%, respectively, on November 4, 2015.

In the next part, let’s look at the sector performances and some key US key stocks.

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