US markets closed higher after Yellen comments

15 Oct 2016 Evaluate

The US markets closed higher on Friday, on Federal Reserve Chairwoman Janet Yellen comments that there may be benefits to running the economy with a tight labor market and after a trio of quarterly bank results which topped estimates. Yellen stated that it might be wise to run a high pressure economy, one with a tight labor market, to reverse the negative effects of the Great Recession. Though not addressing interest rates or immediate policy concerns directly, Yellen laid out the deepening concern at the Fed that US economic potential is slipping and aggressive steps may be needed to rebuild it. Looking for policies that would lower unemployment further and boost consumption, even at the risk of higher inflation, could convince businesses to invest, improve confidence, and bring even more workers into the economy. From low inflation to the effect of low interest rates on spending, Yellen’s remarks demonstrated how little is the economy been acting as the Fed expected. Separately, the Atlanta Federal Reserve’s GDP Now forecast model showed that the US economy is on track to grow at a 1.9 percent annualized pace in the third quarter following the September data on domestic retail data. The latest third-quarter GDP estimate was lower than the 2.1 percent increase calculated on October 7.

On the economy front, sales at US retail stores rebounded in September, with auto dealers and gas stations racking up the biggest gains, in a sign that consumers are still spending enough to keep the economy on a slow but steady growth path. Retail sales rose 0.6% last month to snap back from a small decline in August that was the first in five months. One area that’s almost been immune from the thrifty approach of consumers over the past several years is autos. In September, receipts at auto dealers increased 1.1%. American businesses increased inventories by a modest 0.2% in August as they continue to work down an excessive build up last year. The business sales’ also increased by 0.2 percent in the same month. As a result, the inventories-to-sales ratio remained unchanged at 1.39.

On the other hand, consumer sentiment took a hit as concerns about the presidential election began to weigh, the University of Michigan said. Its index for early October slid to 87.9 from 91.2, below expectations of a 92.0 reading surveyed. The sub-index of consumer expectations fell to 76.6, its lowest level in two years, mostly from households with incomes lower than $75,000. The index of current economic conditions ticked up to 105.5 from 104.2 last month.

The Dow Jones Industrial Average added 39.44 points or 0.22 percent to 18,138.38, Nasdaq gained 0.83 points or 0.02 percent to 5,214.16, while S&P 500 was up 0.43 points or 0.02 percent to 2,132.98.

The Indian ADRs closed mixed; Tata Motors was up 0.78%, HDFC Bank was up 0.59% and ICICI Bank was up 0.12%. On the other hand, Infosys was down 0.99% and Dr. Reddy’s Lab was down 0.75%.

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