U.S. stocks are slightly lower and appear to be in a holding pattern in pre-market trading Tuesday ahead of a key speech today from Federal Reserve chair Janet Yellen that could offer fresh clues as to the central bank’s plans for interest rate hikes.
Yellen’s speech comes at a key time for markets, as the 12% rally for the Dow Jones industrial average since the low on Feb. 11 has lost some momentum. Her comments today on monetary policy also follow comments last week from one Fed member that suggested that the next rate hike could come as early as April, which confused investors as the Fed two weeks ago actually dialed back its rate hike plans this year to two rate hikes, down from four.
In pre-market trading Tuesday, the Dow, which had its five-week winning streak snapped last week and which has eked out a two-session gain of 33 points, was down about 40 points, or 0.2%. The Standard & Poor’s 500 stock index was off 0.2% and the Nasdaq composite was down 0.1%.
Wall Street will be closely watching to see if Yellen stays on her old “dovish” message of moving slowly with rate hikes, or whether she is in agreement from so-called “hawkish” Fed members that are calling for a rate hike sooner rather than later.
Bill Hornbarger, chief investment strategist at Moneta Group, doesn’t expect any market-moving surprises from the normally cautious Yellen.
“I don't believe so,” Hornbarger told USA TODAY. “As chairperson she has tried to be as transparent and uneventful as possible. If she were to deviate from that script I would be very surprised.”
Still, what Yellen says could move markets, especially the dollar and the 10-year U.S. treasury note, says Quincy Krosby, market strategist at Prudential Financial.
“Depending on how — dovish vs hawkish — she paints the economic landscape, markets can certainly move. Most likely, however, she’ll reiterate her decidedly dovish comments from the March Fed meeting,” Krosby says. “This is important because a number of Federal Reserve officials have, since the Fed meeting on March 16, been suggesting that the path of rate normalization may be faster than suggested by chair Yellen. She can help underscore her opinion outlined in the Fed statement and followed up in the press conference.”
Adds Krosby: “Given the clutch of data releases this week, including Friday’s employment report, chair Yellen’s comments are of direct global importance for currency markets, emerging markets, commodities, and export-related stocks. It will be especially positive for markets if she can deliver the same assurance of accommodation that she offered markets on March 16th.”
On the economic calendar today, investors get the January home price reading from S&P/Case-Shiller, as well as the March read on consumer confidence from The Conference Board.
Stocks around the world were also in wait-and-see mode ahead of Yellen’s speech although shares were rising off of earlier lows. The broad Stoxx Europe 600 was 0.4% higher, the DAX was up 0.2% in Germany and France’s CAC 40 was up 0.4%.
Shares in Asia had a quiet day. The Nikkei 225 in Japan fell 0.2% and Hong Kong’s Hang Seng index edged up 0.1%.
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