US markets closed lower; Dow snaps 6-months winning streak

01 Sep 2016 Evaluate

The US markets closed lower on Wednesday, with the Dow Jones Industrial Average snapping its six-month winning streak as weak energy shares weighed on the broader market. A batch of economic reports that may potentially add more cause for the Federal Reserve to follow through with recent talk of lifting key interest rates also dampened sentiment. On the economy front, private-sector hiring stayed strong in August, as employers added 177,000 jobs, Automatic Data Processing (ADP) reported. ADP also revised July’s gain to 194,000 from the original estimate of 179,000. Pending home sales in July reached their second highest reading in a decade, as a solid jobs market and low mortgage rates underpin demand. The National Association of Realtors stated that its pending home sales index rose 1.3% in July, after a downward revision in June to show a 0.8% drop instead of a 0.2% gain. It’s 1.4% above year-ago levels and the second-strongest reading since April. However, a measure of business conditions in the Chicago area posted the weakest performance in August in three months, reflecting a divide in the US economy in which consumer spending is strong but businesses are holding back. The Chicago PMI fell 4.3 point to 51.5. Although readings above 50 indicate expansion, the index had hovered around a more robust 56 points in the prior two months.

Meanwhile, Boston Fed President Eric Rosengren stated that the Federal Reserve will likely meet its US inflation and employment goals soon and should consider that quicker interest rate rises over time could stave off risks to the economy such as rising commercial real estate prices. Rosengren added that a policy tightening is on the horizon and rate hikes should depend in part on risks to financial stability. He noted that as unemployment has fallen amid record low interest rates, asset prices like commercial real estate have risen quite dramatically. With the economy at or near full employment and inflation edging closer to a 2 percent target, the Fed’s so-called dual mandate is likely to be achieved relatively soon.

Moreover, Chicago Federal Reserve Bank President Charles Evans stated that he is increasingly convinced that US economic growth has slowed permanently, a situation that will keep US interest rates low for a long time ahead. Expectations of low growth have become so embedded in corporate and investing behavior, Evans added that even if inflation rises unexpectedly and the Fed has to raise rates faster than it now anticipates, a detrimental spike in long-term interest rates is unlikely.

The Dow Jones Industrial Average lost 53.42 points or 0.29 percent to 18,400.88, Nasdaq was down 9.77 points or 0.19 percent to 5,213.22, while S&P 500 dropped 5.17 points or 0.24 percent to 2,170.95.

The Indian ADRs closed mixed; Dr. Reddy’s Lab was down 0.59% and HDFC Bank was down 0.08%. On the other hand, Tata Motors was up 0.94% and Wipro was up 0.11%.

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